Only 3 a/cs for refinancing, 5:25 norm good: Bank of India

Last year, the RBI had introduced 5:25 scheme in order to help banks restructure long-term project loans to infrastructure and core industries. The scheme envisages banks to refinance or sell out their long-term project loans after every five years. However, many fear the scheme allows system to make asset quality opaque. BP Sharma, MD & CEO, Bank Of India disagrees with perception that 5:25 rule will make asset quality opaque. "The 5:25 conceptually and from a practical angle is quite a practical solution," he told CNBC-TV18. The bank has only three accounts, belonging to steel and mining sector, which will be refinanced in the coming quarter. He hopes to get gross NPA below 5.39 percent by March 2015. Below is the transcript of BP Sharma’s interview with Ekta Batra and Anuj Singhal on CNBC-TV18. Ekta: Analysts community is concerned with the 5:25 rule, refinancing undertaken by public sector (PSU) banks, fearing it could possibly make asset quality opaque going forward. Can you tell us how much your refinancing was undertaken in this quarter in particular? A: There are only three accounts which are in pipeline. The process of 5:25 is on, yet to be implemented and these three accounts represent outstanding of Rs 5,000 crore. But the market perception that this will make the system opaque is not correct because the basic thing is if the asset has a economic life of say 30 years, and he is asked to repay the entire loan in 10 years or 15 years, it is definitely creating stress on his liquidity. So, the concept as such is very good, because of the asset-liability management (ALM) issues, banks are not able to give a turnaround for a period exceeding 15 years and that was definitely creating a case of mismatch especially on large infrastructure. So, the 5:25 conceptually and from a practical angle is quite a practical solution. The idea is that projects should be allowed to come up. So, taking a product view, it will not make the system opaque. But, anyway, once things started getting implemented, or maybe there will be some teething problem, then periodical corrective measures can be taken by the lender. Even the regulator also can revisit their balance depending upon the outcome of this. Ekta: So, in my understanding, there was no refinancing undertaken by Bank of India this quarter and there is only a pipeline of three accounts  worth Rs 5,000 crore? A: Three accounts, yes. The process is on. Anuj: I do believe that you have said that Q2 would be better than Q1. If you could give us some more details in terms of asset quality, the non-performing assets (NPA), if you have any number in mind in terms of the better quarter that you are referring to. A: Our balance sheet probably is not shifted from the qualitative aspect. On net interest margins (NIM) return on assets (ROA), return on equity (ROE), book value and capital adequacy, we have made an improvement. In all the six qualitative parameter of the balance sheet. The net profit is down because of what I call it pitru rin. The Rs 1,300 crore provision which we made last year, the RBI has given a special resourcing to be adjusted in three quarters starting from June. That is one amount I had play out. Then we introduced this ALM for the purpose of providing pension for our employees. That has taken out another Rs 353 crore. If I add up, my operating profit for this June is Rs 2,457 crore against Rs 2,060 crore for the quarter corresponding last year. So, in all parameters, there has been improvement, yes. The NPA is one area where it has gone up, but then recognising a account as NPA timely is definitely a better solution than doing something else. Ekta: For these three accounts that you spoke about, it will be refinanced in Q2 of FY16 and which are the sectors? A: It is steel sector. Ekta: All three are from the steel space? A: No, two are steel another is mining. Ekta: You did slippages of Rs 4,000 crore plus; Rs 4,700 crore to be precise in this quarter. Can you break up the granualarity of these slippages, which sectors did they come from which were the larger accounts? A: I can tell you if I divide my credit into retail and wholesome credit, the substantial slippage is in wholesome credit, that is limits above Rs five crore, the slippage is more there. But then, against Rs 4,800 crore slippage this quarter, last quarter, it was more than that. So, it has showing a declining trend and we have almost reached the vast portion, almost. Anuj: It is interesting you said that two accounts are steel accounts because it looks like a multi-year collapse in commodity cycle or metal prices. Do you fear that the entire banking system could be de-rated because of the exposure to steel sector? We have started to see some of that with your numbers and a couple of accounts turning NPAs, but do you get a sense that this could be a big problem going forward? A: If the spirit and the guidance behind 5:25 are added to by all the members of JLM, there is a fair chance all these units will be revived and the account will come back. We had complained about that. Ekta: Just give us more colour in terms of the guidance for slippages. It has reduced sequentially is what we saw in this quarter. How much do you think you can do in terms of a run rate in the coming quarters? Will it be less than Rs 4,700 crore, more, can you give us a sense? A: I have fixed a target for myself that our gross NPA and net NPA as on March, 2016 has to be below March, 2015. It will be novice on my part to make a claim that there will not be any forward slippage. But the rate of slippage is going to fall substantially quarter-on-quarter. Ekta: So, your gross NPA should be lower than 5.39 percent? A: March, 2015. Ekta: Lower than 5.39 percent? A: Yes, that is a big challenging task, but that is where it makes the job interesting for a MD.