Slippages improved YoY to Rs 4000cr in H1FY16: Canara Bank

Canara Bank's asset quality has bottomed out and slippages improved to Rs 4,000 crore in the first half this fiscal, compared to Rs 5,000 crore last year, CMD Rakesh Sharma told CNBC-TV18.

The lender's July-September quarter earnings disappointed street on Wednesday with profit falling 15.6 percent year-on-year to Rs 528.9 crore, impacted by higher provisions. It was supported by other income, operating profit and net interest income.

But in an interview with CNBC-TV18, Sharma said the bank had not sold any loans to asset reconstruction companies and was targetting net non-performing assets to improve to 2.5 percent by fiscal end from 2.9 percent currently.Below is the transcript of Rakesh Sharma's interview with CNBC-TV18's Sonia Shenoy and Latha Venkatesh.Latha: The gross Non-performing Loans (NPL’s) have risen by about 30 basis points to 4.27 percent how much did the slippages increase?A: Last quarter our slippages were more, this year we have been able to control the slippages. If we see the last first half of 2014-15, the slippages were around Rs 5,000 crore, this year first half the slippages are Rs 4,000crore. This quarter there have not been major slippages in big accounts, there are some smaller accounts which are quite effort elastic. So we have strengthened our credit and recovery department. Since the accounts are effort elastic we will be able to control the slippages now.Latha: So your second quarter slippages were Rs 1,500 crore? Because first quarter you did Rs 2,500 crore slippages.A: Second quarter about Rs 2,000 crore and let me clarify one thing, for the last four quarters we have not sold any asset to ARC, so without sale to asset reconstruction company (ARC) we will be ensuring that our recovery and upgradation should be more than the slippages, so that is why we are strengthening our recovery department now and with that we will be able to control the slippages in the third quarter.Sonia: What about the fresh restructuring? Last quarter you saw about Rs 719 crore of fresh restructuring in Q1, in Q2 what was it?A: These are all small accounts only total amounting to Rs 600 crore so now as per our restructured standard assets that is about 6.97 percent and the Non performing assets (NPA) being 2.9 percent, so the total stressed assets, impaired assets basically, restructured standard asset and the net NPA is less than 10 percent.Latha: Can you tell us exactly? About 9.5 percent is it?A: This is 6.97percent and net NPA 2.9 percent, so it is around 9.87 percent.Latha: You told us that your slippages in the second quarter were Rs 2,000 crore, what were the recoveries and the upgrades?A: Rs 2,200 crore were the slippages and the upgradation was around Rs 669 crore and the recovery is Rs 266 crore and there were some write-offs also. So there is net increase by Rs 945 crore, but if you see as against the addition of gross NPA, around Rs 944 crore, the net NPA has risen only by Rs 500 crore because we have provided more provisioning. So, we have been able to increase our provision coverage ratio. Now it is around 60 percent, just slightly less than 60 percent and our target is that in short term it should be more than 60 percent and by March we should be able to increase our provision coverage ratio upto 65 percent.Sonia: What is your target on asset quality itself because the stock is under pressure as the asset quality has worsened. From this 4.27 percent gross NPA’s, where do you think the bank will be by the end of the year?A: Some of the accounts which have slipped during the current quarter, we are quite sure that we are personally following those accounts. Some of these account will be upgraded by December 31. As I was saying first slippages will be brought under control and second some of the accounts which have slipped during Q1 and Q2, we will be able to upgrade these accounts and our target by March 31 is to bring down the gross NPA below four percent and net NPA below 2.5 percent, without sale of any asset to ARC, with our internal efforts.Latha: How much of your loans did you refinance through the 5:25 route?A: In 5:25, some proposals are under process, it is around Rs 880 crore. Only four accounts were there.Latha: Largely steel or which sector?A: These are basically mostly infrastructure and steel, only four accounts.Latha: Is Ratnagiri Power included in that? A: Let us not discuss individual accounts, industry wise we can discuss.Latha: What is the kind of loan growth that you are expecting?A: If you see year on year (YoY) growth upto the current year, it is around 3.59 percent. But if you see our retail credit portfolio, household in fact it has increased by more than 20 percent and retail portfolio has increased by 15 percent, Medium and small enterprises (MSE) sector has also grown, mainly large sector their growth is less. In fact that was a conscious decision also. Current year our target is topline consolidation and strengthening the bottom line. So the current year because now the busy season will be starting, we are expecting growth of around 12-13 percent.Latha: What did you do by way of net interest margins in the first half? And what is the expectation of net interest margins for the full year?A: Because of our increase in current and savings account (CASA) deposit by almost 178 basis points YoY net interest margin Q1 was 2.21 percent which has now increased to 2.24 percent. So our target is to bring it around, because we are further making all over efforts to increase the advances and the low cost deposit, we are targeting around 2.35 percent for the current year.