State-owned lender Karnataka Bank eyes 2.81 percent net interest margins (NIMs) by March 2015. In an interview to CNBC-TV18 managing director P Jayarama Bhat says on a quarter-on-quarter basis, the bank’s NIM stood at 2.41 percent in Q2FY15 versus 2.33 percent in the earlier quarter.
He further adds that gross non performing assets are likely to improve to 2.25-2.50 percent by 2014-end.
Karnataka Bank saw additions of Rs 32 crore in its restructured book in the quarter gone by. Its restructured book stands at Rs 1,655 crore as on September 30. However, Bhat doesn’t see a huge restructuring pipeline going ahead.
Below is the verbatim transcript of P Jayarama Bhat's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: Can you give us some details, how did your margins do for this Q2?
A: Our net interest margin (NIM) has come down from 2.63 last year to 2.41 but sequentially it has gone up from 2.33 to 2.41. So it is hovering around 2.41 and we are aiming at somewhere near 2.8 by March 2015.
Sonia: What about the asset quality? This time around there has been a slight weakness in your gross NPAs to 3.5 percent, what is the quarter look like and what kind of gross NPAs will you see in the next couple of quarters?
A: If you compare quarter-to-quarter, the gross NPA has come down from 3.59 to 3.53 percent but sequentially from 3.43 to 3.53, it is almost flat and going forward we have lot of plans like asset sale and then good robust recovery, some upgradation in the corporate debt restructuring (CDR) mechanism, all this put together we will be at around 2.5 percent by December and going forward by March we are aiming at 2.25 percent and net at 1.25 percent.
Latha: So your gross NPLs you expect is going to be 2.5 by the time the current quarter ends?
A: Definitely it is not 2.5. We are aiming at 2.25.
Latha: You had restructured accounts of about Rs 1,600 crore for September 30. Can you give us some idea of how much of the previous Rs 1,500 crore that you reported in the previous quarter went into NPLs or could you upgrade any of the restructured assets?
A: There were some upgrades but net there was addition of about Rs 32 crore under the restructured position as of June 30 and the total restructured accounts as on September 30 is Rs 1,655 crore standalone and with including related party till 2013, it forms about 6.7 percent. Here also we don’t see any further restructuring in the pipeline and this as we go along with the increasing advances, this percentage will be coming down and some of the restructured accounts are also likely to be upgraded. So that these restructured portfolio will definitely come down at a level of 5.5 percent from the level of 6.7 percent now.
Latha: Some big banks State Bank of India (SBI) and Bank of Baroda (BoB) have dropped their deposit rates. Should we expect you to do that and now even wholesale rates have fallen over the past two-three months, can you tell us first whether you will drop your deposit rates and secondly what will your cost of money be for Q3 so should margins improve?
A: We have already taken the steps reducing the deposit interest rate above Rs 10 crore. We have reduced by 0.25 percent recently about a week back and one year interest rate now is hovering around 9 percent for regular term deposits and our present cost of deposit is around 7.88 and there is a good signal of increasing the current account saving account (CASA) also. This year to year, CASA has increased by 18.89 percent and we are also conducting a CASA campaign. By increasing the CASA cost of deposit will come down and by that we will get a headroom for reducing the interest rates on deposits.
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