Expect stability in NIMs by September: Bank of Baroda

Stressed assets continue to haunt Bank of Baroda with slippages coming in at the highest levels in the last four quarters.

In an interview to CNBC-TV18, PS Jayakumar, MD & CEO of Bank of Baroda spoke about the results and his outlook for the company.

This quarter we had the disadvantage of couple of very large corporate accounts slipping through which added Rs 1,800 crore of slippage, he said.

The management is still sticking with the FY18 guidance number of increase in net non-performing assets (NPAs) if not exceeding Rs 4,000 crore.

Jayakumar is still optimistic of staying to guidance as was provided in the last annual meet.

The increase in restructured book in Q1 was due to one large telecom account, he added.

We had a flow of about Rs 1,900 crore on the corporate accounts dominated largely by two accounts and then we had a flow of about Rs 1,400 crore on the SME, Rs 300 crore on retail and about Rs 600-700 crore on the agricultural sector, said Jayakumar.

Bank of Baroda has exposure to 10 accounts out of 12 referred under insolvency and bankruptcy code (IBC) worth Rs 7,300 crore.

He expects FY18 net slippages at Rs 4,000 crore and credit slippages at Rs 12,000-13,000 crore.

Net interest margin (NIM) decline is very marginal. We are expecting a fair amount of stability in the NIMs by September, he further mentioned.

The bank is focussing on accounts under Rs 500 crore. This is where we have the highest probability of resolution, he said.

We have referred about four customers to the IBC, one of them is heading towards resolution by the end of the year and we are now going with 26 other cases which we are referring to the National Company Law Tribunal (NCLT), Jayakumar further said.

A: I think this quarter we had the disadvantage of couple of very large corporate accounts, large in relative to our context, slipping through which added about Rs 1,800 crore of slippage in all. As we go forward, we still stay with our guidance number of increase in the net NPA of not exceeding Rs 4,000 crore. We had a similar situation last year when Q1 wasn’t particularly good but through the year, things started improving.

I am expecting some kind of a repeat again. So on the balance, still optimistic of staying with guidance as we have provided in the last analyst meet, in the March analyst meet.

A: The change in the restructured assets was entirely due to one telecom exposure and there is an overall expectation that that exposure would correct and revert back to normality sometime in the last quarter of this year.

A: I would say to some extent that would be absolutely true. It is elevated and it is on account of couple of factors. we had a flow of about Rs 1,900 crore in the corporate accounts dominated largely by two accounts and then we had a flow of about Rs 1,400 crore on the SME, Rs 300 crore on retail and about Rs 600-700 crore on the agricultural sector.

So those broadly are what has happened but as we go back, go into the next few quarters, we do not have too much by way of large corporate exposure that should slip through of a size that should tip the balance and therefore we feel reasonably comfortable of staying to the guidance.

A: Out of the 12 accounts, we have exposure to the 10 accounts. Our gross exposure is around Rs 7,300 crore or thereabouts and our provisioning coverage ratio on the large accounts are roughly around 53-54 percent. I would think the ageing provision that we would be taking during the course of this year, assuming this accounts don’t correct, should be adequate to meet any shortfall as required on the Reserve Bank of India (RBI) formula. To that extent, this has already factored into our numbers.

A: Our credit slippages should be in 10,000-12,000 crore level overall for this year. Our net number should be not more than Rs 4,000 crore.

As far as the provisions are concerned, I would still think the operating profit should come on line with Rs 13,000 crore kind of number and we should still be able to deliver a reasonably single digit return on equity for this year.

So those numbers that I gave to you, earlier in the beginning of this year, in March results, continue to remain exactly where they are.

There are some slippages and it does raise doubts whether those numbers are achievable but we do think it is going to balance itself out as we go through the year.

A: The NIMs decline is very marginal and that has largely happened because of the extent of the slippage and the reversal of interest rate that has happened on the slippages that are there. Now, by September, the conversation from base rate MCLR would be by and large complete. So we are expecting a fair amount of stability in the NIMs and to the extent, the slippages do not exceed our forecast, that should remain the case.