Expect credit growth to rise to 10%; slippages to reduce: OBC

Asset quality for Oriental Bank of Commerce (OBC) worsened with gross non-performing assets (NPAs) rising to 11.45 percent from 9.57 percent quarter-on-quarter (QoQ). The net profit for Q1 came in at Rs 100.7 crore.Speaking to CNBC-TV18, Animesh Chauhan, MD & CEO of the bank said that slippages for the Q1 were Rs 3,464 crore, which are mostly from the iron & steel and textile industries. Total slippages from the restructured books stood at near Rs 1,500 crore.The restructured book now stands at Rs 9,705 crore and the bank managed to recover about Rs 692 crore in Q1. Chauhan expects slippages from restructured books to come down substantially QoQ.The bank’s total 5/25 account has 10 accounts totaling to Rs 2,186 crore. Of this, 3 accounts worth Rs 1,271 crore are NPAs. OBC expects around Rs 2,500 crore from books of big accounts to slip in next3-4 quarters.Credit growth, which was 2.56 percent in the last quarter, is expected to go upto 10 percent by March 2017.Below is the verbatim transcript of Animesh Chauhan's interview to Reema Tendulkar and Prashant Nair on CNBC-TV18.Reema: Can you give us some numbers, what were the slippages in this quarter, what does the restructured book currently stand at and the slippages from the restructured book?A: The slippages this quarter have been about Rs 3,464 crore and this has mostly come from two sectors, iron and steel is about Rs 1,070 crore and textiles about Rs 959 crore and the total; slippage from restructured book was around Rs 1,508 crore. However, what is left now in restructured book standard is only Rs 9,705 crore and this is mostly good doing restructured assets. So we hope that going forward the slippages from the restructured book will come down substantially QoQ.Prashant: How much is left you said in the restructured book?A: Rs 9,705 crore.Prashant: What were recoveries in the quarter?A: The recovery and upgradation was Rs 691.69 crore about Rs 692 crore against previous quarter of Rs 479 crore.Reema: You are saying that you are hopeful that the gross NPAs will come down going forward. It currently stands at 11.45 percent, could you give us a sense on what your guidance is or your target is in gross NPAs?A: When I say the gross NPA number would come down, it is because we expect slippages to slowdown substantially in the coming quarters because it seems to be looking to how the industry and the other businesses are performing and we also expect the credit growth to pick up.The credit growth this quarter is only 2.56 but that is because distribution companies (DISCOMs) debt -- year on year (YoY) growth is 2.56 because the DISCOM debt has come down by more than Rs 4,000 crore because of the conversion of debt to bonds. So, that reduction has also been shown. If you take out the DISCOM debt, the credit growth is 6 percent. We expect that to be around 10 percent by March and with 10 percent growth in credit and now onwards lesser slippage in gross NPAs, we expect the percentage to come down. Given the absolute number of percentage will not be good at this time.Reema: What could be the slippage run rate going forward from the current Rs 3,464 crore, will it be Rs 1,000 crore on a quarterly basis or Rs 2,000 crore, some sense when you say slippages will come down?A: From the restructured and Special Mention Accounts (SMA) book of the larger accounts, we expect anything between Rs 2,500 to slip in the next three-four quarters so that should substantially reduce the overall slippage QoQ. That is our expectation.Prashant: So could you give us some indication about what return on equity (RoE) you would be able to earn? This year, next year, are you working with something internally?A: RoE is coming out of the profitability that you have.Prashant: You are under 4 percent or so? What would you want it to be?A: Presently, it is around 3 if you take this quarter. So that should improve beyond 5 at least but it will depend on how we are going to raise capital also. So, giving an exact number at this time will be a wild guess because we do intend to raise shortly 81 bonds and not go into equity and the government equity when it comes we will have to see how it is coming and that will decide the RoE going for the full year.Reema: Some more numbers -- your structural debt restructuring (SDR) accounts currently, how many accounts in 5/25 and the value as well as the accounts in Scheme for Sustainable Structuring of Stressed Assets (S4A)?A: S4A - we don’t have any account as on date because it is a process which has now started and SDR, this quarter was zero but the SDR accounts as on today that we have are 14 -- which totals about Rs 2,800 crore -- out of which Rs 1,900 crore is already non-performing assets (NPAs). So the standard SDR accounts are about Rs 893 crore as on today.As for the 5/25, we have done only one account where disbursal is yet to take place. So no disbursals this quarter but the total position of 5/25 accounts as on June was 10 accounts about Rs 2,186 crore but then again three accounts of Rs 1,271 crore are already NPA. So the standard accounts in 5/25 is about Rs 914 crore.Reema: And the net interest margins (NIMs)?A: NIMs this quarter is 2.36, which has come down because of the NPA slippages, we hope to recover on that by the year-end.Prashant: If you look at the entire book and you add up the iron and steel figures, you add up the textile figures, you add SME exposure, you add restructured loans as well, you add all this up, what percentage of the total book comes from these things? What would typically be classified as vulnerable or stressed?A: If you add gross NPA, standard restructured then it comes to 16.83 about 17 percentage as on date.Reema: What was it a quarter ago?A: It was around 16, it has increased by about 1 percent because of the higher slippages from SMA book.