No 5/25 in Q3FY16; one SDR account in steel space: K'taka Bk

Karnataka Bank's net-profit declined 9.4 percent to Rs 96.91 crore for the third quarter ended December. In an interview to CNBC-TV18, P Jayarama Bhat, MD, Karnataka Bank, talks about the company's third quarter results and its future outlook.Below is the verbatim transcript of P Jayarama Bhat’s interview with Anuj Singhal and Ekta Batra on CNBC-TV18.Ekta: Can you just give us a sense in terms of the asset quality to begin with. What were fresh slippages and if you could compare it to the previous quarter? A: In spite of bad economy, our net non-performing assets (NPA) percentage was on the same level as to the last year’s net NPA percentage, 2.41 percent. Gross, it has just increased by about 20 basis points from 3.44 percent to 3.56 percent. There were some slippages in this quarter, mainly in the services sector but those are temporary aberrations. We hope to recover those accounts in this quarter and give a decent number for Q4.Ekta: What is the quantum of the fresh slippages this quarter compared to last quarter? A: Last quarter, fresh slippages was around Rs 283 crore and this quarter it was around Rs 379 crore. However, we had equal recoveries also. In this quarter, we had recovered Rs 236 crore and that is why there is an increase of around Rs 100 crore in the gross NPA. However, going forward, as I said, these accounts are temporary aberrations and we are sure to recover these big accounts which have slipped. Anuj: Has there been a directive from the Reserve Bank of India (RBI) to provide aggressively over the last two or three weeks? Have you received any kind of guidelines from the RBI?A: No, we didn’t receive any guidelines or any instructions and there are no instructions as of now. Anuj: Your outlook on the net interest margins (NIM) for the next quarters?A: Our NIM outlook still holds on. We hold on to around 2.5 percent. In fact it is 2.34 percent for the nine months period ending December 2015. Last year it was 2.38 percent. There is just 4 basis point reduction but this is on account of the slow credit growth. This quarter we are expecting a very aggressive credit growth. In fact in the first week itself, we could grow by about Rs 700 crore in credit and with this momentum we can reach our targets. Ekta: You are expecting around a 30 basis points improvement in margins if you look at the NIM for this quarter in particular which was 2.2 percent. So, 2.5 percent should be achieved by when according to you? A: What has happened is, in this quarter there was a reduction in the base rate. We reduced the base rate by 25 basis points which affected across the board for all the advances whereas we have also reduced the interest rates on deposits which is effective on re-pricing on deposits. This re-pricing will happen in another six months, this quarter itself and this should take our NIM up as well the credit growth, as I told you, in the first week itself we got a very good credit growth and with this I think NIM should reach around 2.5 percent. Ekta: Coming back to asset quality, can you just explain to us were there any sale of loans to asset reconstruction companies (ARCs), what was your participation in 5:25 this quarter as well strategic debt restructuring (SDR)?A: As far as the SDR is concerned, there was one account. There was no account as far as 5:25 and we had sold assets worth about Rs 154 crore this quarter. However, we didn’t incur much loss; we had incurred about Rs 20-25 crore which is spread over next eight quarters.Anuj: Can you give some more details on that SDR account? A: The SDR is in the steel sector. It is yet to finalise but the reporting has been done. It is in the steel sector and the SDR will take place and the account in all probability will be a good account. Anuj: What is your exposure size in that SDR?A: My exposure size is around Rs 40 crore. Ekta: What is your guidance in terms of asset quality then, if you could explain what the pipeline might be in terms of slippages, 5:25, SDR as well as maybe your recoveries that you are focusing on? A: As I told, there is no 5:25 account, only one SDR account. We are hopeful of recovery of some major accounts in services sector which should reduce the gross NPA to a level of around 3 percent and net NPA less than 2 percent. I hope to have further improvement on that figure.