Asset quality stable; focus on retail, personal loan: SBM

Sharad Sharma, Managing Director of State Bank of Mysore expects the bank’s asset quality to improve this quarter onwards.In the June quarter, the bank’s net profit rose 25.7 percent to Rs 94 crore and the net interest income (NII) grew 9.6 percent to Rs 577.6 crore. The asset quality remained stable with 4 percent decline in net non-performing asset (NPA) to Rs 1,077 crore and slippages at Rs 286 crore.
State Bank of Mysore restructured six assets under the 5:25 scheme worth Rs 400 crore comprising of steel and oil refinery companies, Sharma said. Going forward, he does not see any increase in restructured loans. 

Sharma said that reduction in demand for corporate advances shifted the bank’s focus towards retail and personal loan segments. The loan growth has been 8.3 percent year-on-year, he said. Below is the transcript of Sharad Sharma's interview with Reema Tendulkar & Mangalam Maloo on CNBC-TV18.Reema: Could you give us some numbers about your asset quality; the slippages, the total restructured assets as well as the financing that you have done under the 5/25 rule?A: If you are looking at the non-performing loans (NPLs), the recoveries in upgradation were Rs 152 crore and the slippages were to the extent of Rs 286 crore. There is a nominal increase of NPLs of Rs 77 crore and there has been some recovery in the return of accounts also.As far as the restructured asset is concerned, over the last two years there has been a very tight control which we have exercised. Last year also we were reducing our NPLs. To give you an idea in June 2014, we had reduced NPLs by 48 bps and in June 2015 YoY basis we reduced it by 92 bps. From 5.61 percent of gross NPLs in June 2014, we are down to 4.21 percent and the net non-performing assets (NPAs) have also declined from 3.43 percent last year to 2.10 percent this year.To give you a flavour of the aggregate impaired assets group, the gross NPAs and the restructured assets as on June 15 have reduced 10.6 percent as against 12.4 percent in June ‘14 and the net NPA restructured asset level is down from 9.66 percent in June '14 to 8.43 percent in June '15. There is hardly any restructuring which has happened in the June quarter has been taken over by 5/25. We have done in six assets aggregating less than Rs 400 crore.Mangalam: In that case, could you give us a sense of some profitability numbers as well? What have your net interest margins (NIM) been? We understand that the bank had taken a base rate cut of 25 bps this quarter. So, what have the NIMs been and also what has the loan growth been because that was muted last quarter and in fact the corporate book was down 2.5 percent? A: There are very few corporate loan proposals coming in and as far as the better rated corporates are concerned, they are moving down to the investment side. So, what we have done is, for the last 1.5-2 years, to make a conscious shift from corporate advances. We were at a level of 65 percent two years back and in June 2014 we are down to 55 percent. Corporate advances and that slack has been taken up by retail growth especially personal segment advances. In Karnataka and Bangalore, we have very good franchise and if you look at an all India basis also the retail housing market in Bangalore is fairly better than what we see in say NCR, Mumbai and Chennai and other places so we are leveraging on that. In fact last financial year we had a growth of 22 percent year-on-year (YoY) basis in housing loans and June ‘15 our housing loan growth has been 17-18 percent. So, we are concentrating on that, so, loan book not a very substantial increase. Our loan book has grown by 8.33 percent but if you look at the average level of advances that has crossed 10 percent and as far as deposits is concerned we have cut down sharply on bulk deposits and CDs which are down to about 8 percent and our overall deposit growth is around 12 percent for deposits. Reema: Could you give us what the refinancing pipeline looks like under the 5/25 scheme?A: The figure which I gave you covers two or three assets where we have given a sanction. In the two or three steel companies this will happen plus in oil refining there is something which will be likely in the September quarter which is one of the south based refineries which is coming up. Reema: The refinancing in the next quarter, in the September quarter will be less than what we saw in the June quarter? A: As far as consortium advances are concerned, there are various processes which need to be followed through. However, I would say that Rs 400 crore is the total restructuring in Q4 last year as well as Q1 this year. Going ahead in the current quarter I don’t think it will go beyond that level of Rs 400 crore.Mangalam: Last quarter there was an offloading of about Rs 70 crore worth assets to ARCs which aided the asset quality. So, has there been any sale to asset reconstruction or reconciliation companies? A: No, in the June quarter there has been no sale to asset reconstruction companies and last year there was an aggregate sale of Rs 830 crore odd to ARCs but not now.Reema: Could you give us some numbers about your asset quality; the slippages, the total restructured assets as well as the financing that you have done under the 5/25 rule?A: If you are looking at the non-performing loans (NPLs), the recoveries in upgradation were Rs 152 crore and the slippages were to the extent of Rs 286 crore. There is a nominal increase of NPLs of Rs 77 crore and there has been some recovery in the return of accounts also.As far as the restructured asset is concerned, over the last two years there has been a very tight control which we have exercised. Last year also we were reducing our NPLs. To give you an idea in June 2014, we had reduced NPLs by 48 bps and in June 2015 YoY basis we reduced it by 92 bps. From 5.61 percent of gross NPLs in June 2014, we are down to 4.21 percent and the net non-performing assets (NPAs) have also declined from 3.43 percent last year to 2.10 percent this year.To give you a flavour of the aggregate impaired assets group, the gross NPAs and the restructured assets as on June 15 have reduced 10.6 percent as against 12.4 percent in June ‘14 and the net NPA restructured asset level is down from 9.66 percent in June '14 to 8.43 percent in June '15. There is hardly any restructuring which has happened in the June quarter has been taken over by 5/25. We have done in six assets aggregating less than Rs 400 crore.Mangalam: In that case, could you give us a sense of some profitability numbers as well? What have your net interest margins (NIM) been? We understand that the bank had taken a base rate cut of 25 bps this quarter. So, what have the NIMs been and also what has the loan growth been because that was muted last quarter and in fact the corporate book was down 2.5 percent? A: There are very few corporate loan proposals coming in and as far as the better rated corporates are concerned, they are moving down to the investment side. So, what we have done is, for the last 1.5-2 years, to make a conscious shift from corporate advances. We were at a level of 65 percent two years back and in June 2014 we are down to 55 percent. Corporate advances and that slack has been taken up by retail growth especially personal segment advances. In Karnataka and Bangalore, we have very good franchise and if you look at an all India basis also the retail housing market in Bangalore is fairly better than what we see in say NCR, Mumbai and Chennai and other places so we are leveraging on that. In fact last financial year we had a growth of 22 percent year-on-year (YoY) basis in housing loans and June ‘15 our housing loan growth has been 17-18 percent. So, we are concentrating on that, so, loan book not a very substantial increase. Our loan book has grown by 8.33 percent but if you look at the average level of advances that has crossed 10 percent and as far as deposits is concerned we have cut down sharply on bulk deposits and CDs which are down to about 8 percent and our overall deposit growth is around 12 percent for deposits. Reema: Could you give us what the refinancing pipeline looks like under the 5/25 scheme?A: The figure which I gave you covers two or three assets where we have given a sanction. In the two or three steel companies this will happen plus in oil refining there is something which will be likely in the September quarter which is one of the south based refineries which is coming up. Reema: The refinancing in the next quarter, in the September quarter will be less than what we saw in the June quarter? A: As far as consortium advances are concerned, there are various processes which need to be followed through. However, I would say that Rs 400 crore is the total restructuring in Q4 last year as well as Q1 this year. Going ahead in the current quarter I don’t think it will go beyond that level of Rs 400 crore.Mangalam: Last quarter there was an offloading of about Rs 70 crore worth assets to ARCs which aided the asset quality. So, has there been any sale to asset reconstruction or reconciliation companies? A: No, in the June quarter there has been no sale to asset reconstruction companies and last year there was an aggregate sale of Rs 830 crore odd to ARCs but not now.