Won't revise rates soon; aim to maintain NIM at 2.85%: OBC

Oriental Bank of Commerce (OBC) is unlikely to review position on rate revision soon. If the RBI does not reverse its policy, and if it is forced to raise deposit rates then there will be pressure on increasing the base rate as well, says chairman and managing director SL Bansal.

"But as on date, I can safely give you a confirmation up to August 20 or 25 we are not going to review our position," he told CNBC-TV18 in an interview. Also Read: Oriental Bank of Commerce Q1 profit falls 10% to Rs 353 cr
According to him, assets continue to slip and despite the best recovery efforts, it has continued to slacken. This is because cash flows are under a lot of pressure which has resulted in a slight increase in gross NPA and net NPA from 3.21 percent to 3.36 percent, from 2.27 percent to 2.34 percent respectively.
This quarter, OBC has restructured assets worth Rs 419 crore. Now the total restructured book is Rs 10,200 crore. He says as long as there is stress in the economy, slippages will remain.
"In the beginning of the year, we had given you clear cut direction that we expect slippages to be in the range of Rs 750-800 crore and overall slippages can be Rs 3,200 crore in the year and against that we expected our recovery to move from Rs 2,000 crore to Rs 2,200 crore, so the gap between recovery and slippage comes down, that is our guidance and we continue to maintain that guidance," Bansal says. Below is the verbatim transcript of SL Bansal's interview on CNBC-TV18 Q: If you could just start by talking about the asset quality this quarter because it seems like there is a marginal worsening which has come in. Can you just take us through the asset quality? How it panned out?
A: Our gross non-performing asset (NPA) has moved up from 3.21 percent to 3.36 percent primarily because – infact on sequential basis our advances have come down from Rs 1,30,000 crore to Rs 1,27,995 crore, had it been at the same level it would have been 3.30 percent. But having said that, if you can look at overall absolute terms numbers it has gone up only by Rs 120 crore because our slippage is close to Rs 760 crore, recovery is Rs 480 crore, a lot of stress is there in the economy.
The asset continues to slip and the recovery efforts despite of all our best efforts have slackened little bit in the sense because the cash flow is under a lot of pressure, so that has resulted in a slight increase in the gross NPA and net NPA from 3.21 percent to 3.36 percent, from 2.27 percent to 2.34 percent. Q: We will come back to slippages, but just wanted to get in how much you restructured this quarter?
A: We have restructured assets worth Rs 419 crore. Now the total restructured book is Rs 10,200 crore. Q: That is actually a significant reduction from what you all did in the previous quarter. If I am not mistaken both your slippages as well as your fresh restructuring has come down on a quarter-on-quarter basis. What is the pipeline then going forward? Do we expect a lower run rate of slippages and addition to restructured assets?
A: Let me explain the restructuring book first. Now about Rs 1,500 crore worth of assets are in the pipeline, but as you are aware restructuring for discoms is already over and we are expecting that within the next 20 days the state governments will issue the bonds in Haryana, Rajasthan and Uttar Pradesh and about Rs 1,600 crore worth of bonds will be received, which will take off our assets book and then the restructured book will more or less will remain the same, closer to Rs 10,000 crore, as far as slippage is concerned.
So long as there is stress in the economy, I cannot give you a commitment that slippages will come down. In the beginning of the year, we had given you clear cut direction that we expect slippages to be in the range of Rs 750-800 crore and overall slippages can be Rs 3,200 crore in the year and against that we expected our recovery to move from Rs 2,000 crore to Rs 2,200 crore, so the gap between recovery and slippage comes down, that is our guidance and we continue to maintain that guidance.
_PAGEBREAK_ Q: In terms of sectors can you just talk about which sectors or may be even specific accounts you had to qualify as slippages as well as restructured?
A: It is across the board. All Rs 760 crore worth of slippage – major slippages have taken place in big corporate accounts and within that one big account which I think I need not take the name, but Rs 170 crore worth of exposure was there which was not in our radar up to the middle of May, but all of a sudden it slips to NPA category and we took a hit of Rs 170 crore. Q: What about the restructured, what were the accounts or sectors that you saw and which sectors do you think you would be most wary of going forward, would it be infra because we have heard of Lanco Infra currently restructuring?
A: Out of this Rs 1500 crore which are in pipeline – your information is right Lanco has already gone there. So, many accounts are there and total amount is about Rs 1500 crore for the bank. Q: In terms of net interest margins (NIMs) what is your guidance with regard to NIMs? How exactly do you expect it to move?
A: If you look at our cost structure last year our cost of deposit on the same period was 7.99. It has come down to 7.70, we saved 29 basis point. On yield front, our yield on advances have come down from 12.35 to 12.03, a loss of about 32.3. It should be looked into the background of our base rate that has come down from 10.75 to 10.25.
Now, 50 basis point cut in base rate has resulted in a reduction on yield by 32 basis point but simultaneously reduction in cost of deposit by 29 basis point, all this has benefited a lot to the bank and our NIM has improved from 2.79 to 2.90. However, we will agree that during the last 18 days, Reserve Bank of India (RBI) has taken various steps starting from July 15 which has resulted in turmoil in the money market.
Earlier we were sitting on a surplus statutory liquidity ratio (SLR) of Rs 5,000 crore and we were confident that we will be in a position to mobilise the Rs 4,500 crore borrowings at 7.25 percent which can take care of our impending sanctions. However, this liquidity adjustment facility (LAF) borrowing has been capped at 0.5, for banks of our size it has been restricted to Rs 900 crore. So, for the remaining borrowing we have to either move to the marginal standing facility (MSF) at 10.25. or the collateralised borrowing and lending obligation (CBLO) or Call.
Now, all this has affected the cost. So, going forward how this cost will remain in the system, how much I will absorb myself, how much I will pass on to the customer – you will appreciate July 9 we had announced that we will cut our base rate by 25 basis point but because of these developments we have decided to hold on to our base rate. We continue to hold on to our base rate at 10.25. I am pretty confident that with all these things in mind we will be able to hold on to our margin closer to 2.85-2.87. Q: You have spoken about rising cost of funds and we have seen some banks actually start with a base rate hike, is it possible that you all would possibly consider that going forward?
A: We have not cut our base rate, while few other banks have taken a decision to cut their base rates and some banks have decided to hold on the base rates. I don’t think in the next 15-20 days we are going to make any reassessment on all these things because Reserve Bank of India (RBI) will continue to hold on to these steps may be for another atleast 20 days. Unless the money market stabilizes, unless the RBI reverts back to the original position I think a cut in base rate is ruled out.
Increasing base rate will depend on the medium term. In another 20-25 days, if the situation continues to be like this and ultimately we are forced to raise deposit rates then naturally there will be pressure on increasing the base rate. But as on date, I can safely give you a confirmation up to August 20 or 25 we are not going to review our position.