Eye 14% growth in FY14, won't raise lending rates soon: OBC

Oriental Bank of Commerce aims at 14 percent growth in FY14, says CMD SL Bansal. The public sector lender expects its retail loan segment to grow around 18 percent, he adds.

Speaking to CNBC-TV18 post its Q2 results, Bansal says the bank will not raise lending rates for the next 45 days. Increasing rates will impact  the bank's margins and meeting the current target of 2.85 or 2.87 percent is important to sustain in the long run, he explained Below is the verbatim transcript of SL Bansal’s interview on CNBC-TV18 Q: Could you tell us one quick reason why the asset quality has weakened so much on a sequential basis? Also, can you give us numbers of what the slippages and restructured assets were?
A: Some slippage has taken place in the agriculture sector, about Rs 227 crore out of Rs 1000 crore. One major road project close to Rs 260 crore has slipped to non-performing asset (NPA) category. So, these two factors have contributed more than 50 percent of the total slippages. Q: What exactly are the total slippages?
A: Around Rs 1,014 crore. Q: How much were the restructured assets this quarter and therefore, the total restructured assets so far?
A: Total restructured assets so far are Rs 9,500 crore. This quarter we have added Rs 350 crore. Q: Is there anything by way of upgrades or recoveries that could lessen the burden?
A: About Rs 1,100 crore worth of bonds have been issued in two discoms – UP and Rajasthan. Haryana is yet to issue and so, the restructured book has come slightly improved from 12.36 percent to 11 percent. Q: Are you expecting more states to join in now?
A: Haryana is still an issue. When it comes, another Rs 350 crore will go from the restructured book. Q: Is it only these three states? Don’t you need much restructuring in other states?
A: We are in four electricity boards. Punjab has opted out. Punjab says they don’t need it. Infact they have come in profit for the first time. We believe they will manage their resources well. Q: What about others, has UP already signed up with you?
A: UP has already signed up and has issued bond as well. Rajasthan has also issued the bonds. Haryana is expected to issue before this month end. Q: Are there any problems with Tamil Nadu? You are not a banker to them?
A: We are not in Tamil Nadu.

_PAGEBREAK_ Q: Are the worst of the problems behind you or can you still get some big one offs – not just you the banking sector itself in terms of non-performing loans (NPLs)?
A: The environment remains challenging. Although, lot of projects have been cleared by Cabinet Committee on investment (CCI) but none of these promoters have come to the bankers asking for loan because they have to put in place their share of equity and only then they will approach the bank.
Once they approach the bank, it will sanction, they will take their own time then naturally the project will start taking shape only after six to nine months. There are lots of challenges on cash flow front and Reserve Bank of India has scaled down the GDP growth prospects as well. So, environment remains challenging. Q: What are your net interest margins this quarter?
A: Around 2.87 percent. It has improved by 8 bps – from 2.79 to 2.87 percent. Q: Around 2.79 was last quarter?
A: Last year, I am talking on YoY basis. Last quarter it was close to 2.84 percent. Q: What do you think the current quarter will look like? Do you think margins will be under pressure or will you manage 2.85-2.87 percent?
A: We will be in a position to manage 2.85 percent because of two-three reasons. Out of this Rs 1,000 crore slippages, Rs 227 crore worth of slippages have taken place in agriculture and most of our branches are in the state of Haryana and Punjab.
Monsoon has been very good and a lot of these assets will stand upgraded within next 30 days. So, interest reversal that has taken a big hit this time of about Rs 150 crore in the first half year will come back. Secondly, this major account that has slipped to NPA category, some recovery will happen and if not upgraded at least on recovery front we will be a bit comfortable.
Margin-wise this one-off hit on Rs 108 crore on treasury will not be there and now bond yield which was at 8.77 percent on September 30 is now trading around 8.55 percent, some relief on that front, so the profitability will be reasonable. Q: What about growth? What has been the advances growth in the current quarter and what do you think you might end the year with?
A: There are two aspects. On sequential basis we are flat since March onwards. On Y-o-Y we are growing at 9 percent and have kept this deliberately at low levels because there are lots of challenges in the environment. Good proposals are not available. Of course our retail is growing at 15 percent.
Our priority sector is growing at 11 percent. So, it is much above the overall growth of the bank. Our large corporate books have grown only by 5 percent. We would like to achieve growth close to 14 percent which is the guidance as per RBI within which we expect that retail will grow close to 18-20 percent, agriculture will grow close to 15 percent and then large corporate book can grow at 6-7 percent and we will be able to manage 13 percent growth. We are not chasing credit aggressively. Q: On Tuesday, after the credit policy all bankers were somewhat confused as to whether they will bring down their deposit cost to attract more deposits, whether they will push up their lending rates. You had a higher repo, but you have had a lower marginal standing facility (MSF) and you have had a little more money coming through the 7 day, 14 day repo. What is your best guess? What are we going to hear from the banking sector or even from you? Will the next news be a hike in deposit rates? What should we hear from you or will nothing move?
A: All these three steps taken together by RBI, a reduction in MSF rate, increase in repo rate and making more money in the term repo will be neutral and the bank cost will remain at the same level. As far as deposit is concerned, it is a worrisome factor, but fortunately credit off take is not much. Only those banks that are pushing a great credit aggressively will be under pressure to raise deposit rates, but as far as OBC is concerned, we will not raise our lending rate for at least next 45 days.
We will watch for another 45 days till December 15. I have chosen December 15, because that is the date when the tax outflow will be close to Rs 50,000-60,000 crore and then we will see how is the liquidity in the system, only then we will take a call and in budget times something will be cleared on credit front, whether we are growing at 12-13 percent or we are remaining in single digits, only then we will take a call. But as on date we are not going to increase our deposit rate, because that will unnecessarily push me on margin front and this 2.85 or 2.87 percent margin is absolutely necessary, because some profit is required to sustain in the long run.