Expect Rs 3,000 cr loan recast in this Q2: Andhra Bank

State-owned Andhra Bank is likely to report about Rs 1,000 crore of restructured loans in the July-September quarter from sectors other than power distribution companies. At the same time, the bank expects another recast of Rs 2,000 crore from the Andhra Pradesh (AP) power distribution company.

Andhra Bank's net profit declined by 36 percent to Rs 231 crore for the first quarter ended June 30, 2013. The gross slippages for this quarter were about Rs 1,118 crore and the restructured was about Rs 600 odd crore, said BA Prabhakar, CMD of Andhra Bank in an interview to CNBC-TV18. 

"The recovery also was not very satisfactory in the Q1 because it is always a bit lower than the other quarters. So, I think because of all these pressures and the slowdown in the manufacturing sector’s growth impacted the asset quality in the mid-corporate sector. So, I think these are some of the reasons that I can attribute for the increase in the NPLs," he said.

Below is the verbatim transcript of his interview to CNBC-TV18

Q: Definitely a very difficult set of numbers from Andhra Bank, one percentage point increase in gross non-performing loans (NPLs). Can you give us some details as to what were the fresh slippages and fresh restructured assets?

A: The gross slippages for this quarter were about Rs 1,118 crore and the restructured was about Rs 600 odd crore. Out of this Rs 1,118 crore, roughly about Rs 450 crore was from non-corporate sector and almost about Rs 700 crore was from the mid-corporate sector.

So, this mid corporate sector slippages also includes some of the accounts which we had restructured earlier. However, the restructuring did not work very well, so we have classified them as NPLs now.

The recovery also was not very satisfactory in the Q1 because it is always a bit lower than the other quarters. So, I think because of all these pressures and the slowdown in the manufacturing sector’s growth impacted the asset quality in the mid-corporate sector. So, I think these are some of the reasons that I can attribute for the increase in the NPLs.

Q: Anything in the pipeline? We have just heard that Lanco has filed for a corporate debt restructuring (CDR) or is speaking to lenders, almost all of you are lenders to Lanco and if Lanco is here then other power companies could also be in a similar boat. Can you give us an idea of this quarter, the July-September quarter what will be the restructuring pipeline? Definitely looks like it will be higher than the Rs 600 odd crore in the Q1?

A: Yes, I think the Q2, we are expecting about Rs 1,000 crore of restructuring in the non-discom sector and we are expecting another Rs 2,000 crore in the Andhra Pradesh (AP) discoms. So, totally we are expecting about Rs 3,000 crore of restructuring in this Q2.

However, as far as the other power sector companies are concerned I think the Lanco account which is now going to CDR is actually not in the power sector. It is in the engineering, procurement and construction (EPC) contracts division, which is basically a construction sector.

So, I do not expect that the other power sectors will immediately go to CDR. Many of these things have been restructured outside CDR and commercial operation is yet to commence in many of them.

Q: What about provisioning therefore, this quarter also will be a stiff one, any idea?

A: The provisions for the restructured book for the next quarter will be something like Rs 150 crore. On the new slippages ofcourse we will have to wait and see how the slippages will come up for the Q2.

However, as of now it is a bit difficult to say what is likely to be the slippages for the Q2. Maybe, closer to second fortnight of September, we should be able to give an indication as to what is likely to be the slippages.

Q: But can it be atleast as much as the Q1 you think, Rs 1,118 crore?

A: No, I think it should be less than that because we have looked at many of the accounts. I think we are also expecting some recoveries in some of these big accounts where we have already initiated recovery steps. So, I think the slippages should be less than what it was in the Q1.

Q: I didn't get your margins for the quarter gone by?

A: I want to just clarify on the margins. What has happened is that the new slippages of Rs 1,118 crore, we have almost reversed Rs 97 crore of interest to interest earned account and that means the net interest income growth is reduced to that extent. So, if you don’t take this reversal into account I think our margins will be somewhere around three percent.

However, this reversal has come on the new NPLs, so that is why it looks like the margin has come down very sharply.

Q: What will be the margin?

A: We feel that the margin for the next quarter should be about three percent.

Q: What about the export subvention, the Commerce Minister announced that export subvention is going to be increased to three percent. Do you see more eligible export borrowers because of that?

A: Yes, it is quite possible because in the yesterday’s meeting with the Reserve Bank of India (RBI) also many banks really argued for an increase in the export incentive. They felt that an increase in the export incentive would definitely help in the exports picking up. So, I think there is some demand that I can see from the export sector.