Focusing on high-yield retail loans: State Bank of Travancore

State Bank of Travancore (SBT) on Monday reported a 23 percent increase in its net profit at Rs 91.47 crore for the December quarter on account of higher income from operations.Total income of the bank increased to Rs 2,660.29 crore for the quarter under review from Rs 2,627.06 crore in the year-ago period, it said in a BSE filing.However, the bank substantially raised its provisions and contingencies to Rs 318.65 crore for the quarter ended December as against Rs 224.46 crore parked aside in the corresponding quarter of the previous fiscal. In an interview with CNBC-TV18, the bank's MD Jeevandas Narayan said the higher provisions were driven by the Reserve Bank of India's decision to ask banks to be more proactive provisioning.Going forward, he said numbers there may be more provisioning but said the bank was focusing on increasing its high yield retail portfolio.Below is the verbatim transcript of Jeevandas Narayan’s interview with Sonia Shenoy & Reema Tendulkar on CNBC-TV18Sonia: In this environment of weakness across the space your numbers are looking quite good but I just wanted to ask you the Reserve Bank of India (RBI) has given two quarters for the first tranche of bad loans to be cleared. So, your provisions will they go up further from this Rs 300 crore that you have seen in this quarter around and even on asset quality it hasn’t worsen this time, it is at 3.8. What is the expectation by the end of the fiscal?A: If I may talk about asset quality first we did some of the basic things which need to be done in terms of front loading some of the tougher measures in terms of whether it is asset reconstruction companies (ARC) assignments or in terms of making provisions or doing the write off where the provisions are available. As you mentioned the RBI’s requirements also have been fully taken care of. However, going forward I think we need not panic, there is no need to sort of be hyper about it. The fact is that yes provisioning will be strengthened. We need to show the provisions going forward as well and that will continue to be done. On the other hand lot of efficiencies are being built in to the system in terms of reducing the cost of funding, cost of deposits as also in terms of going in for higher yield in retail loans. So, all that has helped us to sort of shore up the profits in this difficult times.Reema: If you could just first help us with some numbers for this quarter. What were the slippages, what were the total restructured assets? Did you sell any to ARCs, 5:25, strategic debt restructuring (SDR) could you give us these basic numbers first?A: I can give you those numbers, in fact if you see the gross non-performing assets (NPAs) if you compare the quarter (Q3) FY15 with quarter (Q3) FY16, Gross NPAs have come down by around Rs 760 crore. The net NPA also has come down by around Rs 424 crore over the same period. There by the gross NPA ratio as of now is 3.87 and the net NPA ratio is around 2.46.Having said that the restructured book also – size of the restructured books has come down, so fresh restructuring has come down in the stressed sectors. As of now the gross NPA plus restructured standard assets as a percentage of the gross advances stands at around 10 percent. Sonia: What were the fresh slippages that the bank saw this quarter compared to last quarter?A: Slippages in fact have been to the extent of around Rs 1,156 which is more or less in line with what has been the case last quarter as well. However, point is that this is after taking to account for all those requirements based on what has been done by the RBI inspection also, so all that has been factored in. The point that I am trying to make is fresh slippages also we have been able to contained at more or less the last quarter’s levels. Sonia: So, these fresh slippages of Rs 1,056 crore are the original restructured assets which you have recognised as NPAs, is that correct?A: It is not Rs 1,056 it is Rs 1,156 as against last quarter Rs 1,172 so in fact it is slightly lesser than last quarter. The up gradation in fact has not been much. So, the slippages also increased in terms of movement from standard to NPA. In respect of restructured accounts also has not been of a large extent. It is around Rs 161 crore or so that is down gradation of restructured accounts during the quarter.Reema: What was the refinancing done under 5:25 rule and do you have any more proposals that you are likely to do in this quarter? A: Refinance by way of 5:25, I think in a couple of accounts we have done. These are very well known names and these are all exposures in which most of the banks have exposures. I don’t have the numbers readily but in terms of, as I mentioned to you in down gradation of restructured assets from standard to NPA in fact the same period last year it was almost around Rs 530 crore or so. That has come down to around Rs 161 crore. The point I am trying to make is in terms of even fresh slippages are raising out of down gradations that also has come down drastically. Sonia: Can you give us a sense of what would your gross NPA plus restructured book be for quarter (Q4) and also for say the first half of FY17 what are you targeting as far as gross NPAs?A: Both put together I mentioned to you that NPA plus restructured standard accounts stands at around 10 percent. I believe that we should be able to contain it much within these levels. At one point in time that is December 2014 this was much above 10 percent, it was almost around 10.4 or so. So, from then we have been able to bring it down to 10. Going forward I believe it should be possible to definitely keep it below this, may be move more towards 9.However, the point is, in fact much of the NPA recovery efforts need to be also combined with a robust growth in the credit sector as well. That also helps us to give out improved numbers and that is a slight cause of concern. Now what we have done is rather than going for very large corporate advances we are looking at the mid corporate segment as also in the retail segment. Growth there is of course very difficult and slow but nevertheless it is self sustaining. So that is the strategy of the bank to sort of meet this challenge going forward.