Targeting 8-10 percent loan growth in FY17: Bank of India

Bank of India, which has had a weak March quarter, has made all provisons needed for asset quality review (AQR) and the loss of Rs 6,000 crore has to be seen from a granular point of view, Melwyn Rego, Managing Director and Chief Executive of Bank of India told CNBC-TV18.Out of the Rs 6,000-crore loss, Rs 1,500 crore pertains to provisions relating to sale to ARCs in FY15, he said, adding Rs 1,412 crore was due to extra provisions on account of the new pension table and Rs 4,000 crore from AQR and another Rs 3,000 crore due to Uday and Punjab food credit. In the March quarter, Bank of India's net loss swelled to Rs 3,587.1 crore from Rs 56.1 crore in the year-ago period. Its net interest income during the quarter surged 12 percent to Rs 3,187.2 crore from Rs 2,846.3 crore in the fourth quarter of FY15. Gross NPAs for the bank rose 36.6 percent to Rs 49,879.1 crore from Rs 36,519 crore in year-ago quarter.He said FY16 has been an year of consolidation for the bank and that the bank is targeting Rs 17,500 crore of loan recovery in FY17. Rego said that the bank is targeting a loan growth of about 8-10 percent in FY17. He said that the worst is already over for the bank and the NPA levels for Bank of India should come down and the entire clean-up of NPAs should be over by FY17-end.Below is the transcript of Melwyn Rego’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.Sonia: I was hearing you out at your press conference where you did mention that Rs 10,000 crore of gross bad loans are on account of the asset quality review (AQR). Can you tell us whether it has been fully implemented by the bank and what is the expectation as far as gross non-performing assets (NPA) are concerned in the first half of FY17?A: I can confirm that all the provisions that required to be made as per the AQR have been made and that the loss which you are mentioning of Rs 6,000 crore needs to be seen in a proper perspective. The year which has gone by has been a year of consolidation, reduction in concentration risk and capital optimisation. All this has been to build a stronger balance sheet for the future. Now, when you look at only the year end number, we have to go a little more granular. Out of this Rs 6,000 crore, Rs 1,500 crore pertains to provisions and also certain provisions relating to not only NPAs but also sale to asset reconstruction companies (ARC) which pertain to FY 2015 which has been fully provided for during this year.Now, this appears, in the notes to the accounts for the last year. In addition, we have made a provision of Rs 1,412 crore and that is for moving to the new pension table, that is the internal asset and liability management (IALM) table which factors into the increased life expectancy. So, that itself aggregates Rs 2,900 crore. In addition, we have taken Rs 4,000 crore from the AQR and another Rs 30 crore from the Ujwal Discom Assurance Yojna (UDAY) and the Punjab food grain problem. So, if you add all this up, it is Rs 7,270 crore as against a loss of Rs 6,089 crore.Latha: That point is taken that these unnatural one off provisions did come your way. I want to know how things will look in FY17. That is more important. In FY16, your balance sheet shrunk by about 7 percent. You lent lesser loans. Now, what kind of a loan growth can you guide and therefore, if the numerator increases and you do not have these one offs, what kind of a gross NPA should we be looking at in FY17, more importantly, what kind of provisions? Will provisions come down to Rs 5,000 crore compared to Rs 14,000 crore this year?A: There I need to give you a little backdrop about the strategy being followed by the bank. When I took over in August, within a month, we drew up a strategy. It was a three pronged strategy which I had christened as a Star Mission-I. And this strategy encompassed three areas that is NPA management, current and savings account (CASA) augmentation and rebalancing of the books. Now, we have seen a spurt in the NPA levels, but we have done reasonably well if you look at the upgradations and recovery. Now, that aggregates Rs 10,500 crore which is more than three times of what was done in FY15. So, NPA management has been the focus.The second has been CASA where we have increased it from 29 percent to 34 percent and that has resulted in a drop in our cost of funds. The third is the rebalancing of the portfolio. Now I felt that if we have a branch network of 5,000 plus, the portfolio was skewed in favour of corporate portfolio. It was 56 percent corporate and 44 percent retail. Within a period of this seven months, this composition has changed. And today, retail is 49 percent, corporate is 51 percent. Within a year, I intend bringing down the percentage, rather increasing the percentage of retail to 55 percent and the corporate to 45 percent.Latha: I got the change in strategy, the improvement in CASA and the change in business mix for FY16. But still, if you can give us at least three key numbers for FY17. One, what might your loan growth be? Two, what might your provisions be since 70 percent provisioning cover is needed? And three, what might therefore be the business mix? How much might corporate come down to?A: First is regarding on the asset quality front and recovery. I do see if what we have targeted is Rs 17,500 crore of recovery and my sense is that the normal slippages are not expected to grow above that. So, we would see the NPA in total numbers amount being round about the numbers we see today with of course a caveat of no further surprises which come, because this year, we have seen a number of surprises which of course, we have cleared the entire earlier baggage which was there because all this stress is not that which has been suddenly come up this year. It is that which has accumulated over the last 7-8 years. So, when the numerator remains more or less the same than the denominator, we expect the advances growth to be in the region of 8-10 percent. I do see the NPA percentage coming down. I would not say that the entire stress has gone. We would see some stress during the year, but as Governor has said, the entire clean up would happen by the end of FY17.Sonia: Loan growth, what is your expectation?A: Between 8-10 percent. So, I see the numerator being more or less where it is and the denominator, that is the advances growing by 8-10 percent. Therefore, the percentage of NPAs is likely to fall by the end of the year.Sonia: Can you also tell us about the provisioning amount? What exactly could the run rate for provisions be in the first half?A: It may be a little difficult to give the provisioning number, there are two reasons for that. I can tell you that the target for recovery and upgradation is Rs 17,500 crore. Now, some of these are a little chunky accounts and if this upgradation does happen, then it would have a positive impact on the provisioning.Now, as you know, provisioning is a little difficult to estimate because it is linked to the recovery. There is an aging factor which comes into play and if you do not recover or upgrade the asset, it could move from one category to the next category which could increase provisioning. So, frankly, it is very difficult to put a number on provisioning. But all I can say is that I do not expect the incremental NPAs to be more than the collections and the recovery which we make.