In an interview with CNBC-TV18’s Latha Venkatesh, Andhra Bank CMD CVR Rajendran discussed the bank’s fourth quarter earnings.
Andhra Bank reported a whopping 110 percent growth in profit during January-March quarter, driven by strong net interest income and other income. Fall in provisions and stable asset quality also boosted profitability.
Below is the transcript of the interview on CNBC-TV18.
Q: Just to reiterate on the numbers it was a 44 percent jump in net interest income (NII) in the fourth quarter and profits more than doubled to Rs 185 crore. Let me start with asset quality since that is becoming key for banks. Can you first tell us what were the fresh slippages you generated in the fourth quarter? How did that compare with the third quarter?
A: Totally in the entire Rs 3,400 crore is slippage but Rs 2,400 crore is recovery and upgradation. As a result Rs 1,000 crore is net slippage for the entire year. Last year it was Rs 2,400 crore slippage and Rs 600 crore of recovery. So Rs 1,800 crore was the net slippage last year.
This year net slippage is contained at only Rs 1,000 crore. Cash recovery was only Rs 300 crore last year. This year cash recovery is Rs 1,300 crore.
Q: I take your point that recoveries have been very strong but I just wanted to know about the fresh slippages especially in the fourth quarter to get an idea whether the pain is over for the system or pain is increasing. So, I would want your fresh slippages in Q4 and in Q3 as well as your fresh restructured assets in Q4 and in Q3?
A: As far as the restructuring is concerned the first three quarters we have restructured about Rs 2,000 crore of accounts. Last quarter alone, we restructured Rs 3,000 crore during the last quarter. So in spite of that restructuring and the provisioning only these results were produced.
Q: So, now your total restructured assets were Rs 5,000 crore?
A: No, total restructured assets is around Rs 11,000 crore. It is 11 percent of my assets portfolio. For the past so many quarters it was around Rs 10,000 crore odd. Now it has slightly moved up at around Rs 11,000 crore.
Q: How much of the restructured assets slipped into non performing loans (NPL)?
A: During the entire year around Rs 1,700 crore slipped into non performing assets (NPA) and Rs 395 crore is upgraded and Rs 278 crore is recovered in this portfolio.
Q: Of the restructured assets?
A: Yes, of the restructured assets.
Q: Can you give us some more colour on the restructured assets, which sector did they come from i.e. Rs 3,000 crore only in the fourth quarter?
A: Half of it only came from the power sector, the projects, which are under implementation -- and the coal problem and the gas supply problem -- we got repayment postponed and additional funding is also done in these cases. The remaining came from iron and steel sector and other industries. Substantial NPAs came from agriculture also.
Q: Can you say that of the restructured assets also the incremental amount going into NPL is rising or falling?
A: It is falling. Earlier we used to have about Rs 500 crore restructure happening every quarter. It has come down to Rs 300 crore during the current quarter and out of the restructured assets of Rs 11,000 crore Rs 4,000 crore of restructured accounts have started repayment already. They have all completed the moratorium period, started repayment services as per the restructured terms and after one year they may come out of restructuring status also.
Q: That is positive. Restructured assets that have come out of moratorium how many of them slipped, would you be able to remember?
A: That is what I am telling. Rs 4,000 crore has started the period out of which only Rs 600 crore has slipped. Remaining Rs 3,400 is servicing.
Q: I just now wanted to shift focus to growth. What have been the credit growth in the fourth quarter vis-à-vis a year ago and vis-à-vis previous quarter?
A: Credit growth has been good during the current quarter. The yearend numbers may not be an indicative number, I don’t want to quote it as the right number because it has some of bulge in the year end because of the adjustments which happened in that segment. The overall credit growth was 17.1 percent, it was around 15 percent during the last quarter. So, it is increasing and most of the growth only has come only from the retail segment under the mid corporate.
Agriculture has not grown during the last year because in Andhra we were not able to lend further as the loan waiver is not completed. Agriculture has grown negatively. In spite of that we were able to grow at 17.1 percent with more focus on the retail advances and small corporates which is a good trend.
Q: Now if you can tell us about your margins, what did you do in fourth quarter, how did it compare?
A: In the entire year the interest income has gone up by 14.5 percent. For the quarter also it has gone up by 14.5 percent, whereas interest expense have increase only 4.3 percent. We have contained the cost so well 23 bps is the reduction in the cost of deposit during the fourth quarter alone and 67 bps is the increase in the yield on advances during the fourth quarter. Both these things have increase our Net Interest Margin (NIM) to 3.48 percent. In fact last quarter after the results when I talked to you that 3.43 may not be sustained, we may be in a position to sustain three percent. On a whole year basis we have sustained three percent, on a quarter basis we have increase to 3.48 percent.
Q: Can you maintain 3.48?
A: No, for the next two quarters it should be possible whereas recoveries are resulting in lot of additional interest being returned back to the profits and the agricultural advance when it is recovered two years of interest we have written off in the past, that will be recovered. So, this will result in more recovered interest. But on a sustainable basis the bank will target only three percent as NIM.
Latha: What is your Tier I capital, what is this Common Equity Tier (CET) capital and what capital plans do you have?
A: 7.99 percent is the tier I capital. Total capital is 10.63 percent. We got about Rs 120 crore as capital from the government during the last year. Government holding in the bank is around 61 percent today and our book value is Rs 163. During the current year we have increased our book value very substantially by ploughing back the profits. However, our market price is hovering around Rs 90 only.
Until our market price is at least equal to the book value we may not dilute our stake in the company, we may not go for any public issues. During the next two quarters we may raise substantial amount of tier I and tier II bonds. Last year we raised tier I bond at 9.55 percent which is a good rate. Going forward if the rates are coming to 9 percent tier I bonds will be raised. If the rates are coming to 8 percent, tier II bonds will be raised.
About Rs 3000 crore we may raise during the current year which will help us to maintain a capital adequacy of more than 11 percent. We are expecting a recovery on a large scale during the current year also that will help us to maintain better capital adequacy.
Latha: You have board permission for a QIP or for other capital raising?
A: We have taken permission for every capital instrument. However, depending upon the market conditions we will take a call on that.
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