Asset quality issues especially from the restructured advances is continuing to be a cause of worry for the bankers, VR Iyer, Chairperson and MD, Bank of India, told CNBC-TV18.
"Whatever advances we restructured on certain assumptions have not fructified and in the near future, we don’t see it is happening," she said, adding it was not restricted to Bank of India alone.
"That is an area of worry for all the banks in the industry and you would have definitely seen from the results of many banks that it is this segment where the asset quality is worsening," she said.
On the Rs 8200 crore slippages in the March quarter, Iyer said near 41 percent of it was due to the bank taking a tough stance to discipline the borrowers.
"It is largely because of the recovery of the instalment and the interest (has been) little late than within 90 days," Iyer said.
"It was going on for quite some time and it is time that we disciplined the borrowers, so we have taken a call that we will recognise them as NPLs.
We thought that we will be in a position to upgrade them and also bring in a semblance of discipline in them," she said..
Below is the verbatim transcript of VR Iyer's interview with Manasvi Ghelani on CNBC-TV18.Q: The numbers don’t look very promising, obviously from profit we have moved down to loss, net interest incomes (NIIs) are down, NPA levels are very high. First up, what is the key reason that hit the books this time?A: Banking sector always reflects how the economy is moving in the country and you are aware that the slowdown in the economy has been continuing for a very long time than what we anticipated and even the structural reforms that is taking place in infrastructure sector has really not solved fully the lock jams which are there in the infrastructure segment. If you would really see, we have 45 percent of what we have added in the last quarter is only on account of the infrastructure sector.The total additions to the slippages has been around Rs 8,200 crore of which almost Rs 4,100 crore is on account of infrastructure and second one is the technical reasons of almost 41 percent in the entire other industries actually. When I say technical reasons, it is largely because of the recovery of the instalment and the interest little late than within 90 days. So, we thought it was going on for quite some time and it is time that we disciplined the borrowers, so we have taken a call that we will recognise them as NPL now though after record of recovery and though the other bankers have not classified as NPAs, we have gone ahead and classified. So, we thought that we will be in a position to upgrade them and also bring in a semblance of discipline in them. Q: So, in that sense if the money is coming in on the 93 rd and 94 th day, next quarter upgrades will be better, so what is the rough estimate if you can give us?A: Almost about Rs 3,300 crore are there in that category and we are very hopeful that either all of them or at least 75 percent of them we should be in a position to definitely upgrade them because they are standard by any means of Income Recognition, Asset Classification (IRAC) norms in terms of recovery of interest in installment.
Q: Slippages have also spiked again, but going forward, what is your outlook on slippages? Do you see these turning into NPAs, which didn’t get into that category this time?
A: Asset quality issues especially from the restructured advances is continuing to be a cause of worry for the bankers. Whatever advances we restructured on certain assumptions have not fructified and in the near future, we don’t see it is happening. That is an area of worry for all the banks in the industry and you would have definitely seen from the results of many banks that it is this segment where the asset quality is worsening.
We have not been an exception to that front and this is where we are seeing little bit of an increase in the asset quality. So, these assets will be difficult to recoup them. Either you have to sell them or we have to go in for one-time settlement (OTS).
Q: You did sell about Rs 1,000 crore to asset reconstruction company (ARC) this time. Were these chunky assets and if you could give us a sense on how many and which sectors they belong to?
A: They were around Rs 900 crore plus. I may not be able to immediately give you the numbers, but it will be around 18-20 accounts; not really very chunky accounts.
Q: Going forward will selling to ARCs will be on your radar?
A: It will be on our agenda because this is one of the very important and effective tools given by the RBI. RBI says that you go ahead in selling even SMA-2 (Special Mention Accounts) accounts in the standard category. That is one way of cleaning up your balance sheet, but the capacity of the ARC to take up more fresh assets have been rather limited because they have got capital constraints of their own. We have identified a list of accounts where we will see how we will go ahead in these.
Q: You said major accounts were from infrastructure. Did you not capitalise on the 5/25 scheme that RBI had opened up and if not, will you look at that? In the going future do you think that scheme would actually work considering the scenario that we are in?
A: 5/25 scheme is a very good scheme. It is quite positive in the direction, but one important thing is we have to bring in 25 percent of the new incumbent bankers there. We are facing problem because many of the bankers don’t want to step into an account, which is already causing a little bit of a concern in the maintaining the COG or in completion of the projects. It is yet to take off, but there are a couple of projects which I hear, mega projects which are an attractive consideration for 5/25 but any account to get fructified into 5/25 really takes a good time of six months. As of now we don’t have, but then we do have about 35 accounts in the Joint Lenders' Forum (JLF) and we will definitely look in to that.
Q: You said certain accounts are under consideration for 5/25. If not accounts exactly, could you give us the cumulative numbers of how much would these sum-up to at least?
A: Here we are not the leaders, but maybe in couple of accounts the discussions are going on in the industry at the lead bank level. That may fructify in due course, but not in the month of June.
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