Have Rs 1000 cr of NPAs in iron & steel sector: OBC

Public sector lender Oriental Bank of Commerce's (OBC) posted a 3 percent rise in its second quarter net profit to Rs 301.3 crore year-on-year. Speaking to CNBC-TV18, Animesh Chauhan, MD and CEO of OBC says the slippages have declined to Rs 770 crore versus Rs 1600 crore quarter-on-quarter (QoQ). He expects slippages to keep declining every quarter for the rest of the fiscal.The bank has an exposure of Rs 9,600 crore to the iron and steel sector. Of this, Rs 1,000 crore of loans have been declared as non-performing assets (NPA), Chauhan adds. Meanwhile, the bank has restructured two accounts under 5:25 scheme, he says. OBC is likely to open 100 additional branches by December FY16, he adds. Digital initiatives like revamped net-banking system and mobile application banking will aid company’s growth going forward, Chauhan says.Below is the verbatim transcript of Animesh Chauhan\\'s interview with Ekta Batra & Mangalam Maloo on CNBC-TV18.Ekta: Can you take us through more internals of the asset quality, what for example was the fresh slippages this quarter and any sale of loans to asset reconstruction companies?A: The sale to asset reconstruction companies this time is only two accounts worth about Rs 5.74 crore. So it is almost negligible. The slippages this time are around Rs 770 crore compared to the previous quarter.Ekta: Compared to how much last quarter?A: September 2014 was Rs 978 crore, March 2015 was Rs 762 crore and this time it is Rs 770 crore.Mangalam: Could you also give us some colour on fresh restructuring was under the 5:25 schemes?A: In 5:25 scheme we did two accounts of about Rs 204 crore during this quarter.Ekta: What is your pipeline in terms of your 5:25 as well as your slippage runrate?A: We are seeing reduction of stress in several sectors. So we don’t see much of the slippages from these sectors coming but yes, in power and steel there is stress. Hopefully things are being improved, the type of steps being taken by the government -- as the stress goes down, the threat of slippages will go down but if anyone or two big accounts slip in a quarter then number looks a bit distorted but otherwise these slippages should be in the range that it has been during this quarter barring those if any big accounts.Ekta: So it should be around Rs 700 crore at least in the next two quarters according to you?A: Hopefully, unless some big account on these sectors shows sudden problem. However, the steps that are being taken by the government on power and steel, hopefully they will stabilise and we will not see surprises but you can never rule it out. Yes.Ekta: What is your pipeline for 5:25?A: 5:25 we don’t have much of the pipeline right now but these keep coming and decisions have been quite fast. So the development happens within the quarter. As you will see it has not been much in the quarter also only two accounts for Rs 200 crore but yes 5:25 on both projects that are doing well, completed projects and running there also it is happening so not essentially only on the stressed assets.Mangalam: Could you give us some colour on what the credit offtake is like, what do you expect your FY16 loan book to grow at?A: If you look at our structure of the credit, about 53 percent is corporate credit where our growth this quarter has been only about 1.5 percent so that we expect to improve in Q4 with the economy going up, some demand from the corporate sector will start coming but if you look at our other book, the retail, agriculture and MSME (RAM) book, which is constituting about 46-47 percent of the loan book there the growth has improved already to about 14 percent. It is about 14.04. So the overall credit growth during this quarter if you see on year-on-year(Y-o-Y) is around 7 percent. So if this RAM growth we expect to improve as it has been doing quarter after quarter and reach around 18-20 percent by this financial year-end and if the corporate credit book shows a bit of a demand rise in the last quarter, the loan book growth should be in double digit. We are expecting around 10-12 percent in the financial year end position.Ekta: I just wanted to ask you about your gross non-performing loans (NPLs) again. Was there a strong amount of recoveries undertaken by the bank, is that an initiative that you are looking at and if in case you could quantify it for us?A: The recoveries are very hard earned and recoveries in the balance from previous quarter they have gone up a bit. If you look at NPA slippages and recovery position in Q2, the recoveries are about Rs 265 crore which is compared to Rs 170 crore in the last quarter and Rs 186 crore in September 2014 quarter. So that is a bit up because of the very hard efforts and very focused working that the bank has been doing on recoveries specially under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) and individual cases also but this will be remaining at the same level.Ekta: What were your net interest margins (NIMs) this quarter?A: Our NIM this quarter was 2.76 and improvement of about 11 bps quarter-on-quarter (Q-o-Q) but with the base rate reductions we have already done, we expect it to be around 2.70 going ahead.Ekta: We had a Moody's analyst who spoke to us earlier and he said that the recognition of the stressed assets is expected to be the only problem that we might see in terms of gross NPLs going forward or the large problem but power as well as iron remains one of the key focus areas or the stressed points, how much exposure do you have to power as well as iron and steel at this point in time and how much of stress do you expect in incremental quarters from that sector?A: How much I will not be able to tell because in power also a lot of steps have been taken by the government, the coal supply position has stabilised quite well. The discom problem as is being discussed gets solved and then the power situation must show a substantial increase. So I don’t see much slipping from there but iron steel still remains a worry though some of the good signs are coming but it is not stabilised yet. Our exposure to iron and steel is around Rs 9,600 crore and already about Rs 1,000 crore are declared as NPAs. In power it is part of the infrastructure group so there I am not seeing much of the deterioration if at all to happen in the coming days.Ekta: Which sectors did you refinance?A: It was only two accounts so talking of sectors will not be good. One was a road project, one was in steel. In Rs 200 crore, talking about sectors in two accounts will not be very relevant to talk of.Ekta: What is your plan in terms of branch addition because we have heard a lot about the branch addition plans from some banks which was not taken too well and obviously digital initiatives in the context of increasing competition and the banking space, where do you think OBC stands on its plan and how many branches do you currently have?A: We have a plan of opening 100 branches during this year. So far we have opened 57, we intend to open all the remaining 43 before December. So our 100 branches opening plan we will be completing by December so that we gain into some business from those branches.Ekta: On the digital platform, a lot of things are in the pipeline and we expect during this financial year to have lot of initiatives on mobile banking and the other platforms coming up including our net banking we did a new revamp version, our call centre has been upgraded very recently so those impacts will be seen in the coming quarters.A: We have a plan of opening 100 branches during this year. So far we have opened 57, we intend to open all the remaining 43 before December. So our 100 branches opening plan we will be completing by December so that we gain into some business from those branches.On the digital platform, a lot of things are in the pipeline and we expect during this financial year to have lot of initiatives on mobile banking and the other platforms coming up including our net banking we did a new revamp version, our call centre has been upgraded very recently so those impacts will be seen in the coming quarters.