Maintain FY16 guidance; retail, SME to grow strongly: Federal Bk

Federal Bank today reported a fall of 38.52 percent in its standalone net profit to Rs 162.7 crore as compared to Rs 264.7 crore in the same period last year. Gross non-performing assets (NPAs) increased 3.15 percent to Rs 1,684 crore in the quarter gone by. Speaking to CNBC-TV18, Shyam Srinivasan, MD & CEO of the bank says that external stress is visible in the quarter gone by. Internal changes and better management helped in recognizing stressed assets, especially in the corporate sector, he adds. The bank’s total slippages came at Rs 571 crore for Q3 of which two are large metal accounts and another one is a textile and jute account, says Srinivasan. Two stressed accounts, valuing Rs 200 crore, were sold to asset restructuring company (ARC) in the quarter gone by, he says. The bank saw bounce back in corporate loan segment with a growth of 4 percent in Q3, he says adding that retail and SME segments strong growth will continue in coming quarters. Going forward, the bank maintains growth guidance of early teens in FY16 and says that stressed asset situation will improve in coming quarters, he says. Below is the transcript of Shyam Srinivasan’s interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18.Anuj: What is your asset quality because the market is asking this question yet again? Your stock is down 8 percent, we have seen quite a bit of worsening of your asset quality this year as well.A: I would split it into retail, small and medium enterprises (SME) and corporate. On the corporate, for about three quarters now, the stress has been evident and we have recognised all of it. So, in some ways, the quarter that went by, did see the influence of probably an external environment stress and it is reflecting in our books. So, the good part is retail and SME continue to be good. SME saw some stress last quarter, has come back quite strongly this quarter. Retail continues to be performing well. One the corporate, there were a few accounts which we had concerns and we have recognised it all, so in some sense the quarters ahead should see a marked progress from here. On the corporate side, whatever was stressed in areas like metals and some of the shipping accounts have all been fully recognised. So, I would think this is probably amongst the worst in terms of slippages for us. And from here is should get better.Sonia: We do not have the exact slippages number. Can you give it to us for the quarter and also if you can break it up for us on what the slippages was for the corporate and in the SME book?A: For the quarter that went by, the overall slippages for retail was Rs 61 crore, for SME was Rs 115 crore and corporate was a little over Rs 190 crore. So, there were a couple of large transactions which we had put through as sale to asset reconstruction company (ARC). So, those were in and out as in they slipped and they were sold in the same quarter. So, what was shown as slippages in the quarter is SME Rs 115 crore, retail is about Rs 61 crore and the corporate is about Rs 190 crore. This compared with the previous quarter, Q1, this year was Rs 312 crore, Q2 was Rs 403 crore, this quarter was Rs 383 crore. However, there were two transactions that came in and went out in the same quarter.Anuj: If I heard you right, you are saying that this is the worst of the asset qualities slippages and going forward, we should see improvement? If yes, could you quantify that?A: We had when we declared our Q2 results indicated that there were a couple of accounts which we of concern to us. In the quarter that went by, many efforts that where to try to restore the account did not work out, so we have recognised them as non-performing assets (NPA). One of them we have even sold to an ARC. So, our guidance then and now continues to be an improving portfolio and whatever was seen as stressed in corporate has been addressed. Retail and SME trending quite well and continue to do so.Sonia: The other big problem has been, the loan growth has been very weak for the last couple of quarters. In fact, if I remember correctly, in quarter two, your loan growth was just about five odd percent. What has it been in quarter three and what is the expectation going ahead?A: Year-to-date (YTD) year-on-year (Y-o-Y) is 11 percent. Q3 was very good. We had 4 percent for the quarter, so analysed, it is almost 16 percent growth. And the most heartening part is the corporate where we had degrown quite materially, came back strongly on the back of many changes we had put in internally. We have hired a very senior person and the team that is come in place. So, the corporate growth in the areas we want to grow, the mid corporate segment has been very robust. And that should continue. So, we had then said our growth in FY16, should be around the early teens, I think we will hold on to that.Anuj: An update on the sale of loans to ARCs for the last quarter and second on 5:25 scheme. Has the RBI asked you to provide for the 5:25 cases?A: We do not have any 5:25 cases and whatever RBI has asked of any bank, in our case, what has been asked has been fully done. So, there is nothing that is a divergence or anything that is open issue from our point of view.The slippages for the quarter, I mean the sale to ARCs, like I pointed out, there were a couple of accounts which were recognised as NPA and sold to ARCs.