Oriental Bank of Commerce is unlikely to increase its base rate if the liquidity position remains as it is, says CMD SL Bansal in an interview to CNBC-TV18’s Ekta Batra. The bank reported a 31 percent year-on-year decline in its third quarter net profit to Rs 224.3 crore, on weak growth in net interest income and higher operating expenses.
According to Bansal, it is very difficult for the public sector lender to pass on the increased lending rate to the customer as it will cause a lot of stress on the borrower. “They are as it is facing problems as far as cash flow is concerned. We would like to hold on the base rate unless we will be forced to raise the deposit rates. We will be able to hold on to this and our margins in the next quarter will be closer to 2.66 percent,’ he adds.
Below is the verbatim transcript of SL Bansal’s interview on CNBC-TV18.
Q: It has been a stable quarter for OBC at least in terms of its operating performance because of its profitability which is down mainly because of higher operating expenses this quarter, but can you just take us through the asset quality details this quarter and how that panned out for you?
A: With regards to asset quality there is some hit because our gross non-performing assets (NPAs) have moved up from 3.77 to 8.77 percent and net NPAs also moved up primarily because total slippage is about Rs 1,040 crore. One big account of textile, about Rs 260 crore has slipped to NPA category, otherwise most of the slippages are as per expected guidance.
Q: What are your restructured loans this quarter?
A: Total loan restructure during this quarter is Rs 1,365 crore but during this quarter we got bonds worth Rs 1,700 crore. So, restructured books remain almost flat, slight up by Rs 200 crore, it is at Rs 9,700 crore.
Q: The restructured loans that you undertook this quarter seems to be higher than what you have been generally doing in the past couple of quarters, what led to the higher restructuring this quarter and what is the recast pipeline for you all?
A: This quarter restructured book is Rs 1,365 crore, environment is not good therefore, some additional restructuring is taking place and next quarter also about Rs 1,500 crore worth of assets are in pipeline. But as I told you, still a much better performance as total impaired assets continues to be in the range of 11 percent, put together NPA as well as restructured books.
Q: What have you restructured this quarter, which sectors or maybe specific accounts?
A: I think most of the accounts are in public domain, large number is coming from infrastructure book. Therefore, it will not be fair on my part to give individual names but also these accounts are in public domain but the total figure is Rs 1,365 crore. We recover about Rs 1,760 crore worth of bonds and two big accounts have fallen from restructured book to NPA category and therefore, the overall reconciliation is that Rs 200 crore additional restructure book moved up from Rs 9,400 crore to Rs 9,700 crore.
Q: What would your slippages pipeline look like, what is the trajectory we could expect?
A: Last year, total slippages of the system were Rs 3,300 crore. This year first nine months, total slippages is about Rs 2,800 crore almost Rs 900 crore per quarter and this trend will continue. We will be ending with the same amount of slippages that we have ended with 2011-2012 which was Rs 3,800 crore.
Q: How did you do in your net interest margins (NIMs) this quarter?
A: This quarter NIMs have taken a hit in the sense 75 bps increase in the repo rate, 50 bps in the first six months and 25 bps have come in the month of January and will hit next quarter only. This year we have not been able to pass on the increase in lending rates to the customer, our base rate continues to be at 10.25 percent, our NIMs have come down to 2.69 percent for this quarter and year as a whole it has come down from 2.85 to 2.81 percent.
Q: Are you planning to pass on the base rate hikes at all in order to protect your margins or will you now work with a new normal of maybe 2.6 percent which you did this quarter?
A: As on date, we would not like to increase the base rate if the liquidity position remains as it is. It will be very difficult to pass on the increased lending rate to the customer because then we will be inviting another problem and there will be lot of stress on the borrower. They are as it is facing problems as far as cash flow is concerned. We would like to hold on the base rate unless we will be forced to raise the deposit rates. We will be able to hold on to this and our margins in the next quarter will be closer to 2.66 percent.
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