Along with the recapitalisation, a whole list of reforms have also come in – reforms focused on differentiated banking, reforms on governance structure, digitization and customer reach and customer service, said Mahesh Kumar Jain, MD & CEO, IDBI Bank.
IDBI Bank reported its third and it looks like the pain is now stabilising for the bank, the gross non-performing assets as a percentage of total loans were slightly low at 24.72 percent versus 24.98 percent quarter on quarter (QoQ). Similarly Net NPAs also fell about 20 basis points from Rs 29,489 crore to Rs 29,353 crore.
To know further details of the Q3 numbers and the outlook going forward, CNBC-TV18 spoke to Mahesh Kumar Jain, MD & CEO, IDBI Bank.
He said the bank is on a trajectory to reducing losses and could take one-two quarters more the losses could continue because of the ageing provision and higher provision requirements and some identification of slippages into the NPL category.
On recapitalization, he said along with the capital whole list of reforms have also come in – reforms focused on differentiated banking, reforms on governance structure, digitization and customer reach and customer service, said Jain.
Below is the verbatim transcript of the interview.
Q: There is incremental progress being made in reducing the losses. Are we one or two quarters away from black in the bottomline?
A: First of all, let me briefly touch upon it that what we talk about the turnaround strategy of the bank to focus on the core business, we are on the lines. If we see, our net interest income (NII) numbers have grown, not only quarter-on-quarter (QoQ) basis, even nine month to nine month basis. The operating profit grew by 679 percent on QoQ basis, but on nine month basis also, there is an improvement of 60 percent.
Even if we exclude the extraordinary items, which is basically sale of non-core assets, still in the operating profit from core business, 341 percent growth on QoQ basis and 15 percent growth on nine month to nine month basis. Despite of the fact that there was a provision, one time provision because of mark-to-market (MTM) losses, which was to the extent of Rs 474 crore in Q3, which was not there in previous quarter or the previous year respective quarter, so, that is an improvement. Operating expense also we have reduced by the extent of 11 percent. We have increased the other income as well.
So these are the key business parameters where we are focusing to improve our operating profit and it is consistently going to improve upon. As far as these numbers are concerned, we are in the trajectory of reducing our losses but it may take another one or two quarters more where the losses will continue because of the aging provision and the higher provisioning requirement and because of certain identification of these slippages into the non-performing loans (NPL) category as well.
Latha: I wanted to ask you what you will do with the capital. You have got more than Rs 10,000 crore of capital, what will it do to your capital adequacy ratio and are you therefore likely to more aggressively provide and bring down your net non-performing assets (NPA)?
A: That is what basically is our objective. If you look into it, our common equity Tier 1 (CET1) has improved from 5.64 percent to 6.62 percent because of the capital infusion by the government as well as we have reduced our risk weighted assets (RWA). RWA in last 10 months decreased by 24 percent and over March it has reduced by Rs 20,000.
Apart from that, whatever additional capital infusion is, definitely we will provide because there will be aging provision and our provision coverage ratio (PCR) which has improved to 57 percent, will further improve in this quarter, in Q4 as well.
Q: Any ballparks figure at all in terms of how much the net NPA can come down to?
A: Net NPA, it depends up on certain resolution. Earlier we were expecting that whatever National Company Law Tribunal (NCLT) cases in Q4, there may be some resolutions, but now probably these resolutions actual money may come in the Q1 of next financial year. By that time we will be able to substantially reduce our net NPA. However, in Q4, our estimate is again, 16 percent we may reduce to around 12-13 percent.
Q: The big positive news is that the aggregate NPA number has been brought down from Rs 51,000 crore to Rs 50,000 crore odd. Is this now a trend, can we expect lower and lower gross NPAs?
A: It should be in Q4, there should be some reduction in Q4 definitely, but to what extent we have to wait and watch because our watchlist is also little bit heavy. However, we have to recognise because our mantra is we need to recognise, we need to resolve, and then we need to recover, if it is not resolution. So there is no point to push the issues at the back.
Q: Can you tell us what have been the fresh slippages and how they compare with the Q2 number, fresh slippages, and if you have any recoveries and write-offs?
A: Fresh slippages during this quarter was Rs 4,127 crore against the previous year quarter of Rs 4,700 crore. There are upgradation and recovery to the extent of Rs 973 crore.
Q: Your deposits and advances have been inching lower, when can we see a growth, I mean both QoQ and year-on-year (YoY) there has been a fall in advances, right?
A: That is right, actually that is because of the strategy. If you see our current account, saving accounts (CASA), CASA improvement is 36.14 percent CASA, against previous year of 28.39 percent, and even on March 31.46 percent. So, 5 percent increase in nine months as far as CASA percentage is concerned. We are shedding our bulk deposits and that is the reason why we are able to increase our NII despite of having substantial portion of assets generating lesser income.
On advances side, again there was a strategy that we have to come down in corporate book and we have to increase our retail book. Retail book YoY growth is 10 percent against the previous year growth of 5 percent and the corporate book we have brought down by extent of 24 percent. So that is part of our strategy.
Q: Anything from Reserve Bank of India (RBI) at all in terms of a divergence that you have to report?
A: Yes there are certain divergences which we have to report because the cycle is over and we got the list and out of that, around Rs 2,000 crore is left out which will be there in this quarter out of the total divergence. Remaining we have already factored up to December quarter.
Q: It is not more than 15 percent so you do not have to declare it.
A: It will be more than 15 percent.
Q: The divergence is around Rs 2,000 crore you said?
A: Divergence is Rs 2,000 crore to be recognised in Q4. Remaining we have already recognised.
Q: Would you be able to give us the overall number of divergence?
A: As of now immediately I am not having those numbers. However, divergences are more than 15 percent.
Q: Is there any change in strategy because when the Finance Minister announced the allocation of money, allocation of recapitalisation bonds, he said, the Department of Financial Services (DFS) Secretary said that each bank will follow its own strategy, its own core strengths. So should we expect anything in terms of a change, anything in terms of consolidation or privatisation for IDBI Bank?A: As far as the strategies are concerned, there are a whole list of reforms which have come along with the capital and really we appreciate the reforms which have come in. Those reforms are focusing on the differentiated banking, reforms are focusing on the governance structure and they are focusing on the digitalisation and the customer reach and customer service. These all four areas are on the top of our mind and next board meeting we are going to deliberate upon each and every point and definitely it will help the bank in working out and carving out a differentiated strategy that where we would like to be placed ourselves keeping in view our strength.