Full year loan growth target stands at 15-16%: BoI

Below is the transcript of Vijayalakshmi R. Iyer’s interview with CNBC-TV18's Gopika Gopakumar.Q: Your Net Interest Income (NII) growth this time is up 20 percent. So it is much better this quarter. What are the key factors that led to the growth this time?A: Apparently growth has been quite good. Almost 20 percent growth is there. The key factor is that the entire bank at all levels and layers we have focussed on recovery. So recoveries from all the bad and doubtful and lost assets, of course, we still have a long way to go but then our recoveries and acquisition during the first half of the current year is almost more than what we did in the last financial year. So this only actually has directly resulted in increasing the income part of it and that has resulted in the growth of 20 percent on the NII side.Q: But despite the fact that recovery is much better asset quality continues to be a big concern. You are targeting a gross Net Interest Income (NPA) of 3 percent for the full year when the gross NPA this quarter has come in at around 3.5 percent. How hopeful are you that you will be able to achieve that target?A: The current quarter’s NPA, of course, growth is there by about 26 basis points. Of this we have technical NPAs to the tune of around Rs 800 crore which already would get upgraded in the next 15 days. That is one aspect.The second aspect is the recoveries of almost around Rs 1,000 crore are visible for us in the current quarter also put together. And also that there are no big accounts for us now in the current quarter, sitting on the fence to become NPA I am quite confident that we should be able to contain.As I said these targets set by us is quite ambitious, quite ambitious, quite optimistic. Our all out efforts are there and we want to bring it down to the level of 3 percent. That is why I also actually qualified that it may be around 3.15 to 3.20 because bringing down the NPAs in the current context when the economy has really not turned on is challenge. Q: How is the existing restricting book doing? Are you seeing any sort of slippages on that front?A: In the current quarter the slippages have been slightly more from the restructuring work, almost around Rs 1,200 to Rs 1,300 is what if I remember my figures correctly coming from about 40 accounts from the CDR and the remaining from the non CDR accounts. The restructuring pipe line is there to the tune of around Rs 1,500 crore for us in the current quarter also will be there coming mostly from the EPC contractor’s side. This is one area of EPC segment where we are seeing highest stresses. I hope and I am sure that the government is taking steps from the power side and the coal linkages side so that we don’t see fresh slippages on that side but should the pace of reforms lag behind what is required in the market then maybe the restructuring will be there more in the next quarter. We have of course made a request to both the government as well as the Reserve Bank of India (RBI) that in that event maybe there will be a need for them to look at the restructuring guidelines and continue further, maybe for a period of six months or a little longer.

Q: Loan growth this time has come in up around 18 percent. So good growth coming in, where is it coming and do you see what is the kind of loan growth that you are expecting for the full year?A: This growth of 18 percent is year-on-year (Y-o-Y). If you see the current half year our growth is just 7 percent. On the domestic side our growth is negative by 2 percent. We have grown only because of our robust interest in the business and mostly in Foreign Currency Non Resident (FCNR) we loan buyer’s credit as well as of course some part of the oil companies taking the loan from us and a few multinational companies who have gone abroad as part of their expansion. Otherwise the growth on the corporate side is very muted and we have only seen some working capital green shoots coming up and those are the early signs of recovery. So I hope that will get continued. That is why I said for the next two quarters we really cannot expect for any high pick up in the credit growth.Q: But much of your concentration now is on the retail credit and how is that pick up going to happen considering that all banks are now looking at retail growth to drive their loan book?A: Retail is one area where actually the demand has not slackened and we have demographic dividend in terms of the population who really wants to go for much of home loan, consumption loan. So in that part of the bracket pick up is there, demand is there. In fact we have grown during the current half year by almost 77 percent in our home loan segment and we hope that that will get continued and therefore we are opening more retail centres across the country and we are focussing largely on the auto side and on the home side.Besides we are focussing largely on the vendor in channel financing and the dealer financing. We have got quite a few Memorandum of Understanding (MoUs) entered into and we are putting all our efforts through our SME centres and our retail banking centres and also mid corporate processing centres to increase so that the quality is also taken care of because the suppliers who supply to the multinationals their credit history is established. So we are concentrating on that.Q: There is a concern in the market that because of the regulatory forbearance as you spoke about that will be removed by April next year, will there be more slippages coming in from the restructured accounts because clearly after April accounts will not be eligible for being restructured?A: Yes, clearly after April we cannot do the restructuring as per the current guidelines but RBI doesn’t as such prohibit us financing even in case of NPA accounts or a little before now. So we are at the job of identifying the accounts from SMA 1 and 2 which may require the restructuring based on the techno viability study. That is why I said maybe Rs 1500 crore maybe there in the current quarter for the third quarter and on the fourth quarter let us see how the pace of the economy picks up and turns around.

Q: What is your full year target for loan growth?A: Our full year target for loan growth is hereon 15-16 percent. We don’t want to grow at the pace that we grew last year. So, we are very conscious of especially the risk-weighted assets. The loan book which attracts more risk weights like 150 percent we are avoiding all together unless and until we are confident of the rating and also the return. So, we are very conscious and that is why when I said that although the loan growth is 7 percent our risk-weighted assets have just grown by less than 1 percent. That is why we could optimise in the capital spend and improve the capital adequacy ratio too. Q: How is your exposure to all the coal based projects doing? Are you seeing any sort of stress on that front? A: As of now we don’t see the stress building because the government has allowed them to mine the coal up to March. However, eventually the government is working out very seriously and they will come out with some solutions. So, we will wait and watch what reforms they do and how fast they do and then accordingly we will plan out our activities in that.Q: What is your exposure to these projects?A: We don’t have any direct exposures to the coal block allocation accounts but then indirectly these will effect the power units, these will effect the steel sector and also the cement sector and we do have exposure to all these sectors. Our exposure to infrastructure segment is around 16 percent and to the power alone is 11 percent. Of the power, 50 percent are to the state electricity boards (SEBs) where the state government guarantee is there. We don’t see any concern as of now but going forward we will have to wait and watch. Q: What is your outlook on interest rate, are you looking at cutting lending rates going forward? A: As of now we have reduced the rate of interest on the deposit side. We don’t have any plan immediately to cut the base rate. We did cut the base rate from 10.25 to 10.20 during the month of March 2014. We will wait and watch, we do see some of the banks cutting the base rate to 10.15 by private sector banks and also State Bank of India. If that comes in the way of our business we will certainly look at it.