See FY14 loan growth at 18-19%, domestic NIMs at 3.1%: BoI

Bank of India expects to clock loan growth of around 18-19 percent for FY14, says CMD VR Iyer. The Q2 loan growth for the public sector lender grew 21 percent year-on-year.

Speaking to CNBC-TV18 post Q2 results, Iyer says despite the net interest margin (NIM) dropping to 2.93 percent on the domestic side, it will increase in next two quarters. She believes the bank will be able to increase NIMs to 3.10 percent on the domestic side and on the international side from 1.03 percent to 1.15 percent at least.

Below is the verbatim transcript of VR Iyer’s interview on CNBC-TV18

Q: There is remarkable improvement in your asset quality. The only niggling worry with investors is when bad assets come because they are big assets which come lumpily and fall lumpily. But is the worse over? Will we see even lower gross non-performing loan (NPL) as a percentage of total book for next quarter?

A: The worst is over. I do appreciate the concern of the market, because Bank of India (BOI) was registering high non-performing assets (NPA) during the last two years after the year ended March 2013, but internally we have been working very hard to strengthen the monitoring as well as recovery system and it is really paying off.

We have been able to substantially reduce the gross NPA to 2.93 percent from 3.04 percent and the net NPA to 1.85 percent. Our endeavour will be to further reduce and certainly the gross and net NPA position is not likely to increase in the coming quarters.

Q: What was restructured asset number in Q1 and what is the total stock of restructured assets now?

A: In Q1 we restructured about Rs 755 crore. In Q2 it is around Rs 855 crore of which the corporate debt restructuring (CDR) is Rs 247 crore. The others represent non-CDR restructuring and for the current quarter from October to December, it may be around Rs 1,000-1,200 crore. These are the indications that I feel like discussing with borrowers, not that they are already listed with the CDR cell.

Q: How much of restructured assets slipped into NPL? Also, what did you do by way of recoveries and upgradations?

A: On an average, we do this stress analysis on all accounts, so our experience is that 10-12 percent of the restructured assets do slip to the NPA level. Coming to the recovery side, we have been working very hard internally to recover large amounts from our bad and doubtful segment and this quarter we have been able to do almost Rs 817 crore as compared to Rs 607 crore in the substandard category.

You would also appreciate that out of the NPAs the last portion in the substandard category, the accounts that have slipped in as of September in substandard category have already recovered Rs 280 crore in October itself, so we are having a very hard recovery drive across the country.

Q: What kind of loan growth and margins are you expecting in second half?

A: Loan growth y-o-y has been 21 percent on domestic and on the advances it has been a bit high, but taking into account the currency depreciation the loan growth on the international side has not been very large. On the domestic side, as has been our strategic decision, we have been trying to improve our domestic credit deposit and it is happening now.

When I took charge of the bank it was only 68 percent, now it is 72 percent and that is also helping us in improving margin. Our loan growth for the whole of this fiscal year should be around 18-19 percent, which is our estimate given the current context and the economic environment.

With regards to net interest margin (NIM), our NIM has slightly dropped to 2.93 percent on the domestic side, but it is bound to increase in next two quarters and I am confident that I should be able to increase to 3.10 percent on the domestic side and on the international side from 1.03 percent to 1.15 percent at least. I had earlier given the guidance of 1.20 percent, but I am slightly revising downward my guidance to 1.15 percent now, because the pick up of recovery across has not really happened.

Q: Don't you think you will be under pressure to increase deposit costs or the interest you pay on deposits? Will there be a rush for deposits now? Do you see deposit cost going up for the system and for yourself?

A: The liquidity is not very comfortable and during the festive season and advance tax there will be a bit of tightness, but nonetheless if you see BOI, we have been able to increase large amount of deposit during first quarter and second quarter and that is really keeping us in good stead. We are not borrowing in the market and as of now I am not seeing immediately, maybe going forward if the growth is not there on the deposit front than I would look into, I have no plans of doing it in the day or two or in the next one or two weeks.