In an interview to CNBC-TV18, TM Bhasin, CMD, Indian Bank spoke about Q1 numbers and exposure to Lanco Infratech, which has proposed debt recast for loans worth Rs 7500 crore.
Indian Bank, which disappointed the street with its first quarter earnings today, said that the bank will support Lanco Infratech’s corporate debt restructuring proposal. The bank has an exposure of Rs 400 crore to the power and construction company, TM Bhasin CMD, Indian Bank told CNBC-TV18.
Lanco Infratech has started a process to restructure debts totaling Rs 7,500 crore after economic weakness impacted the performance of power and engineering and construction operations, according to a Reuters report.
Indian Bank today reported higher-than-expected 31.2 percent year-on-year fall in net profit at Rs 317.4 crore. Its net interest income dropped 4.9 percent to Rs 1,097 crore in April-June.
The state lender had fresh slippages of about Rs 643 crore in the first quarter. “We have been able to contain our gross NPA, as from 3.33 percent as on March 31, 2013 to 3.41 percent. Similarly, the net NPA has been contained at 2.31 percent as against 2.26 percent as on March 31, 2013,” Bhasin said.
The bank hopes to maintain net interest margin at 3 percent going forward. The bank aims to reduce gross NPA at 3 percent and net NPA at 1.5 percent by current financial year end.
Below is the verbatim transcript of the interview
Q: What is the exact number in terms of what slippages you have seen this quarter and what have your recoveries been in Q1?
A: Our opening non-performing assets (NPA) balances were Rs 3,565 crore and the fresh slippages about Rs 643 crore. We have made cash recoveries of about Rs 185 crore and upgradations are about Rs 32 crore. Similarly, the prudential write off is Rs 266 crore, so, the reduction in NPA’s is about Rs 485 crore and the addition in NPA is about Rs 643 crore. With this we have been able to contain our gross NPA, as from 3.33 percent as on March 31, 2013 to 3.41 percent. Similarly, the net NPA has been contained at 2.31 percent as against 2.26 percent as on March 31, 2013.
Q: Still Rs 643 crore of fresh slippages is what you have created. What might be this quarter? You have already seen about a month of one third of this quarter, will it be as bad? What is it looking like?
A: I think about Rs 300 crore comes from the large accounts and the rest Rs 350 crore comes from the smaller accounts. What we have done is that we have called all top 50 NPA borrowers to our headquarters and we have discussed with each of these top 50 NPA borrowers the strategy to upgrade or they recover the amounts from these accounts so that we can upgrade or take the recovery measures in this. In the coming quarters you should see some good results coming out of these meetings. We are constantly in touch with the NPA borrowers to upgrade these accounts. But in this quarter you will see that we have been able to contain the gross the NPA at 3.41 percent as it was 3.33 percent as on March 31, 2013 and the net is also contained.
Q: I agree with you, I am just asking you what is the visibility you have for the current quarter in terms of slippages, that is the July-September quarter. You think it will be as much as Rs 650 crore again? Will it be less, more?
A: I think this quarter we should not have so much of slippages and going down the line there should be some upgradations and better recovery coming in the current quarter.
Q: What about restructured assets? How much did that increase by?
A: Total restructured assets around Rs 15,637 crore out of which the accounts closed are Rs 1,700 crore and if we take the Mahapatra committee's recommendation and as per that the upgraded accounts, the total restructured outstanding comes to Rs 10,019 (ten thousand nineteen) crore out of a loan book of Rs 1,10,000 crore from this the NPAs are Rs 1,103 crore and we are holding net present value (NPV) provision of Rs 346 crore in the restructured book.
Q: You have seen quite a slippage in your net interest margin (NIM) this time around, at 2.3 percent versus 3 percent last quarter. Do you expect this pressure to continue and what kind of net interest margins can Indian Bank hold in FY14?
A: I think NIM has been in the vicinity of 2.7 percent and going ahead for the year as a whole we have the expectation that with the upgradation and larger recoveries coming the NIM will be in the vicinity of around 3 percent for the year as a whole.
Q: What is your growth? How much did your loan book grow by quarter-on-quarter?
A: Loan book has gone up by about four percent as on March 31, 2013. But for the year as a whole it is 16.14 percent.
Q: For the current quarter do you fear that your margins will erode a little because of the mark-to-market losses, because of the money market tightening?
A: I think the margins should improve in the current quarter and the coming quarters because we expect that better recoveries will come in the forthcoming quarters.
Q: I just wanted to get your view also on Lanco Infratech. We understand that they are asking for corporate debt restructuring (CDR). You have an exposure to that company. Would you be able to give any idea as to what is the latest on that account? What is your own exposure? Lanco Infratech, we understand could be filing for CDR?
A: Lanco yes, we have the exposure and this is about Rs 400 crore. This is a performing asset as on date.
Q: What is your exposure and what are the CDR details?
A: Rs 400 crore is the exposure that Indian Bank is having on Lanco and we will be joining CDR mechanism as they have gone to CDR, so we will be supporting the CDR.
Q: What is the total exposure of all the banks? How many banks are in the consortium? What is the total exposure?
A: I think that as per press report it is about Rs 7,000 crore.
Q: Also, you were telling us about your slippages coming off quarter-on-quarter to about Rs 640 crore to Rs 1,100 crore last quarter. Going forward how much do you think your gross NPAs could stabilise at? This time it has come in at Rs 3.4 percent. How much do you think you could bring it down by?
A: For March 31, 2014, we have a guidance of about three percent gross NPA and about 1.5 percent net NPA because it has been our strategy to provide more-than-required provision. This quarter also we have provided about Rs 124 crore in D1-D2 (doubtful asset categories), 100 percent provisions we have made. So going down the line we will like to improve our provision coverage ratio to about 65 percent, as on March 31, 2013 it was 60 percent, we have raised it to 62.10 percent. So, the provision coverage ratio we will like to improve to 65 percent and so the net NPA should come down to about two percent and gross should come to about three percent.
Q: An industry question, Lanco is not one of its kind, a whole host of power generators. The discom problem was kind of sorted out by bailouts, but a whole host of power generators are struggling with very poor capacity utilisation for want of fuel either coal or gas or for want of buyers. So, do you fear that before the year is out you are going to have more Lancos on the CDR list, Lanco is just the first of them?
A: I think you are aware that in the Cabinet Secretariat one committee has been set up to take care of the coal linkage and other pending issues to help the stalled projects.
Q: Inspite of it Lanco has filed for CDR, inspite of all these committees. So, I just want to know whether there would be three or four more down the line?
A: This committee and the bankers collectively are trying to sort out these problems and going down the line there should not be any issue, which will further deteriorate the position with regard to these accounts and these accounts should be upgraded in times to come from the restructured to performing category as per the Mahapatra committee.