MC EXCLUSIVE NPAs, capital adequacy to get impacted post amalgamation, says Saraswat Co-operative Bank chairman

Saraswat Co-operative Bank's Chairman Gautam E. Thakur

Saraswat Co-operative Bank's chairman Gautam E. Thakur said after the amalgamation with New India Co-operative Bank, there will be impact on the bank's capital adequacy ratio and asset quality.

"The impact on the asset quality will be few basis points (Bps). But we will be able to absorb it," Thakur said in an interview with Moneycontrol.

He added that Saraswat Co-operative Bank's capital adequacy is right now at about 17.45 percent and there will be some impact, but we are well above whatever RBI regulatory requirement is about 13 percent.

On July 1, Saraswat Co-operative Bank has announced its intent to merge crisis-riden New India Co-operative Bank.

Edited excerpts:

Are you confident to cross Rs 1 lakh crore balance sheet?

We are at Rs 91,800 crore, we are confident of crossing Rs 1 lakh crore during this financial year. It is not that because of this merger that we will grow, we are doing this merger for reasons of that we are the largest co-operative bank, so keeping in line with the co-operative ethos and the co-operative spirit, we are trying to take care of depositors of a bank where depositors are in trouble.

Do you expect your deposits to go up after this merger?

There will be deposits coming in. But, you also have to understand that with the deposits and advances going up, there will be also losses of that bank which we are able to take care of.

Do you need to make additional provisions after the amalgamation as the NPAs are expected to go up?

No. We already have an additional provision that is a separate thing. Gross and net NPA will rise for a short period, but we are confident that when we are going to turn around this bank and with our growing advances, we will be able to revert to this particular position in about a year's time or a year and a half time.

We have measured the impact of this particular action on our ratios and we are confident as in the past also when we merged those other banks, there was an aberration for some period of time. That happens and it is to be expected, but only when you have a strong balance sheet you are able to absorb this in a better way and we are confident of it.

What is the estimated amount you have already calculated?

We have done a due diligence report, there has been that embezzlement has been reported, that is a loss for sure. There is some other estimated loss based on those advances where we have done that due diligence report.

Any impact you see on your capital adequacy ratio and liquidity position in the near term?

We have adequate liquidity as of now. If required, we will take help from DICGC and apart from that our capital adequacy is right now at about 17.45%. There will be some impact, but we are well above whatever RBI regulatory requirement is about 13%.

Will there be branch closures or layoffs?

No. We will have to, on a case-to-case basis, depending on the convenience of the customer, we will have to see which branches we are going to retain or maybe we will retain many of their present branches or maybe some of our present branches and that branches.

Do you expect the investigation to have an impact on the transition of the merger?

Well, With the legal cases that will be going on, Please understand that the law enforcement agencies are already acting on it and it would be unwise for me to comment on that. But we will see to it that we fully cooperate with these law enforcement agencies to see to it that whatever wrongdoings are there, whoever are involved are brought to justice.

Some other accounts are also under scrutiny in New India Co-operative bank, will that delay your amalgamation?

Nothing like that. Law enforcement is a different process. Amalgamation is a different process. That will keep on going on till there is closure for law enforcement, we are going to cooperate with that.

This amalgamation, we know that there are going to be some losses. We are going to take them over. But in the end, we will be able to turn the bank around.

We will be able to help the depositors and we are very confident of that.

How much impact will be there on asset quality?

The impact on the asset quality will be few basis points (Bps). But we will be able to absorb it.

Even if the Universal Bank license is opened up, you would rather be a more kind of a large cooperative rather than a commercial bank?

We are the largest cooperative. There is no regulation, for a cooperative to become a universal bank. It is only in the Vishwanathan Committee report there is a mention that the Tier 4 UCBs, they may be allowed to function as universal banks. This is for RBI to decide as to what would be the eligibility criteria and what all is there. When that avenue opens up, then only can we think of becoming a universal bank.

Whenever there is an enabling regulation, that is when we can think of applying. Till then there is no question.

What I am categorically underlining is the fact that we do not want to go from a cooperative bank to a commercial bank.