Slippages likely to reduce to Rs 1000cr in Q2: Central Bank

Public sector lender Central Bank of India sees its slippages below Rs 1000 crore in the second quarter. CMD MV Tanksale told CNBC-TV18 that its slippages in Q1 were to the extent of Rs 2,400 crore. “They were huge mainly due to one single account - Winsome Diamonds and Jewellery Ltd,” he said.

Further, slippages in Small and Medium Enterprise (SME) and agriculture were normal and growth in these sectors was 20 percent plus, he added. With slippages coming down, he expects provisioning requirements to come down too. Advances in the second quarter are also likely to be better than Q1. Operating profits too have showed substantial improvements, he added. Below is the verbatim transcript of his interview on CNBC-TV18 Q: The big disappointment has come in on the asset quality which has gone all the way to 6 percent versus 4.8 percent on your gross Non-Performing Asset (NPA) level. Can you just give us an indication of the pressure points right now and how are you hoping to recover in terms of your asset quality going ahead? What could the range be like for the gross NPAs in the quarters to come? A: The slippage this quarter has been Rs 2,400 crore, but out of Rs 2,400 crore Rs 1,000 crore is attributed to one single account from the gems and jewellery, which is very much known in the market. Besides that there are few accounts of Rs 100 crore plus which are particularly from the infrastructure and real estate side where securities are good enough, but the cash is a problem. I am very confident that these accounts will come back. I would like to take you through the history of Central Bank for last two years when I took over. From June 2011 onwards I started working on the system identified NPAs. The NPAs moved from Rs 2,400 crore to Rs 7,200 crore by March 2012, but March 2012-13 although the slippage was of the order of Rs 5,400 crore the net increase in the gross NPA was only Rs 1,200 crore. I would like to emphasis that every account is being really chased by the bank to either upgrade or recover substantially, which has been proved by the bank. As a result on March 2013 my gross NPA percentage vis-à-vis March 2012 had reduced from 4.83 percent to 4.80 percent. This quarter there is a double whammy. One is advances have been below the March level, almost by about Rs 3,000 crore and Rs 2,400 crore of slippages which I feel that the one account which is under gem and jewellery is likely to be treated through the Corporate Debt Restructuring (CDR) and it is likely we may look through some better improvements in that and all other accounts I am very confident the improvements are there. I am very happy that the slippages on the retail, Small and Medium Enterprise (SME) and agriculture are of a very normal nature and thus I very strongly feel that the bank can come back again. Q: This quarter almost all the good work has been undone and worse has happened. Even if I subtract that Winsome account of Rs 1,000 crore, you are still left with a Rs 1,400 crore increase. That itself is not very small in terms of a percentage increase that will work out to a 15 percent increase Quarter-on-Quarter in gross NPLs. The worry is that as an economy we have not troughed out. Hence what is the visibility? How would you look at the current quarter? Will you repeat a 14 percent increase in gross NPLs? Will it flatten out? A: I do not say that we will repeat. Every account is being monitored. Out of 1,400 accounts, 6 accounts constitute Rs 800 crore and that is why I said that these are all accounts, which can come back to the normal. Similarly in this quarter couple of accounts may see a little problem, but I do not see that it is the same what will get repeated. Winsome we have declared it as a NPA. When I look at the economy as whole, I am very clear that on the retail, SME and agriculture sector we are not really stressed. The growth is pretty good, at 20 percent plus. The recoveries are coming forth. The delinquencies are of a normal order of 1-1.5 percent, not beyond that. Q: Are you likely to continue to see a reduction in the total advances? You said last quarter it fell by Rs 3,000 crore. A: This quarter advances maybe better than the previous quarter. In previous quarter when the money was cheaply available to various corporates, they were all resorting to go to the other markets. Today the money is not available at that rate, so obviously the corporates will come back to the bankers and I am very sure that demand on bankers is going to be there for disbursements. Q: There is a small likelihood that this quarter you will also have to report mark-to-market (MTM) losses on your bond book. Do you have any sensitivity analysis? You are actually staring at about Rs 7 fall in bond prices in the past 7 days. What might that do to your bond portfolio? A: I am very sure that the bond portfolio will get a hit anywhere around Rs 300 crore or so. But I very strongly feel that it is too early to really comment on that. The market should become calm because the measure taken by Reserve Bank of India (RBI) to suck the liquidity to stabilise the rupee  have proved right and I the rupee has stabilised at around 59/USD. Therefore, this situation will cool down over period of time and the bond yields will come down and I do not think the bankers will be required to take that big a hit. Of course but only time will tell. Q: Last quarter your provisions went up by quite a bit to close to Rs 1,000 crore. How much will you have to provide for in this particular quarter i.e. Q2? How much do you think slippages can come down by? A: I am very sure the slippages should be really within control below Rs 1,000 crore and thus obviously the provisioning requirements will come down. If you analyse the provisioning for Q1; for the first time bank has showed operating profit of Rs 1,000 crore. This operating profit is of course supported by the treasury, but at the same time from the core activities also there is a substantial improvement in the operating profit. What you have to look at is below the line, if the bank is able to give the operating profit of Rs 800-900 crore and save the provisions to Rs 500-600 crore it will be a very comfortable position.