ET Now, IDBI Bank‘s MD and CEO, Rakesh Sharma explains the situation put the institution in and how they are charting a path back up with a portfolio they have worked hard on. Edited excerpts:
Congratulations! Seems like it has been an excellent quarter, net profit is up four fold? Let’s address the elephant in the room, first. We understand that you made a total recovery on the Kingfisher Airlines account, help us understand the math.
Thank you very much for the compliments and I would like to convey that, while these are good results, the way the bank is going and the turnaround that has happened, in the future we can recover, we can expect better results going forward.
About Kingfisher, in their finances, around Rs 450 crore was in the interest and Rs 278 crore was in other income. Basically, we have been able to recover almost 140% of the principal and still some more recoveries are expected. We have provided for our NPAs and the provision coverage ratio is 97% so similarly when some other recoveries come we can expect similar results in future, probably even better ones.
I have seen your earnings and your gross NPA seems stable, slippages have been lower sequentially, but, help me understand which segments do you think are still under stress and could be problematic going forward?
One thing I would like to mention is that while gross NPAs have slightly come down by almost Rs 618 crore, percentage wise it looks like it has gone up sequentially because of the denominator factor.
Stress, of course, there were some slippages and our guidance note – which I had given – says our slippages will be within 2%. You know, stress has gone up, maybe an effect of the COVID-19 second wave because apart from these slippages some restructuring has also taken place, so for accounts which have slipped and updated during the same quarter the slippage percentage works out to almost 0.63% so annualised it will be 2.52% but going forward I am quite hopeful that with the lot of recoveries happening even during the pandemic, we’ll be able to curtail our slippages within 2% and in any case not over 2.5%.
Second, sectors. This particular quarter, mainly of course, slippages have happened in corporate, mid corporate and retail. Comparatively it was more in retail but still as compared the two previous years, these are under control and if we see our collection efficiency ratio more or less now it has stabilised to pre-COVID levels. Last year also it was around 94% collection and now 94% again. We have been able to reach almost 94%. So I think in the coming quarters recovery position is expected to improve further and hopefully we will be able to control the slippages in much better way and we will be able to restrict it to within 80%.
At an industry level, we’ve seen higher retail slippages, I just wanted to understand where is it that you stand at when it comes to your retail book? Also the corporate book and the stressed debt?
You are right, because the slippages this time this has happened more in retail book and SME retail when I say retail SME and agriculture; but, if we see our retail book, the assets, out of Rs 60,000 crore of my total structured retail assets, Rs 40,000 is in home loans and a portion of auto loans and the other personal loans. It is quite low so that is why we do not expect that you know the same situation will happen because these are all secured advances. Even in MSME there are LAP – loan against property – and similarly in agriculture of course there are some core agriculture activities but at the same time we have for the last one year putting emphasis on gold loans. Yes there was some stress in gold loan but at the same time gold loan assets are fully secured. Maybe initially some SMEs and the stress may happen but finally we will be able to recover the money so that way our retail portfolio is such that I do not think that you know the slippages in our portfolio will happen or will increase in the coming quarters.
I want to understand on the book and how do you see it developing from this point on now that lending curbs are not there. How fast do you see yourself growing, what is the kind of composition that you are looking at in the coming quarters?
You are right, in fact, that is now the main focus area because internally we have strengthened all our policies, the house has been set in order, recoveries and NPA management group recovery department is working very fine, all that is fine. So now we have to focus on some growth also because if we don’t grow we will not be able to further improve the income. That is one factor. The second is that despite reduction in gross NPAs and all these because of denominator factor the percentage does not appear to be that good. So now the focus – because we were removed from PCA on March 10 – one quarter was there but unfortunately this has coincided with the second wave so that is why growth could not happen but still we have sanctioned certain loans in corporate, mid corporate which will be disbursed during the current quarter. So my focus will continue to be on retail. Now 62% is retail I think during the current year the retail will not come below 60% because I am expecting around 10-12% growth in retail and the mid corporate, large corporate 8-10%.
Now, in the large corporate and mid corporate one thing is certain that we are going rating wise, we will not be taking any disproportionate share in any particular individual or particular group so that way we want to spread it over various groups so mid corporate will be focus area. In mid corporate good industries are there, good rated ones in manufacturing and we will be focussing on that.
Second, the government has announced a guarantee scheme for MFIs so there also we are getting good demand, so growth will happen. And apart from that, in retail apart from my normal portfolio which I had explained earlier that home loan and others the personal loan which was quite low, it is only less than Rs 600 crores so focus is happening.
All these factors taken together, I am quite hopeful that we will be able to grow around 8-10% and that growth is really required for further improving my gross revenue because now the cost of deposit, cost of funds we have been able to reduce quite substantially but there is a limit to that.
So double digit growth is what you are hoping for in the advances book. I do want to understand what the outlook is on credit cost because during the quarter we saw it come in at 63 bps, are you hopeful that you will be able to keep it at that or below for the full year?
No, like you know this – again, I had indicated that my credit cost will be within 1.5%, now if you see the present for the quarter the credit cost is around 0.57% so roughly works out to 2%, it appears to be slightly higher than my guidance note but if you see the current quarter – because we were having good surplus profit so as usual we have been quite proactive in making the provisions. That is how my provision coverage ratio is 97%. So we again have done some accelerated provisioning for my DA-2 accounts although it was not required. So otherwise if we exclude that special provisioning my credit cost was only 0.28% so that means around 1%. So again, I emphasise that yes, we will be restricting it to within 1.5% only and that is quite reasonable with that I think we will be able to show good efficiency ratios like ROA and ROE.
Reports are suggesting that DIPAM has clarified that the LIC and government may be exiting IDBI Bank and an open offer is going to be triggered, have you heard anything on that, any developments?
As we all know they had floated RFP for appointment of legal advisors and transaction advisors, some offers have been received also so they are examining. Ultimately, like last time also I said that now I maintain that my focus is on to improve the performance so that all the stakeholders get the benefit, my bank gets the benefit. But this aspect is also going on but it is being independently handled by DIPAM so they will do it and I think the way things are going on hopefully I think I cannot specifically lay down the timeline but may be this can be completed within this financial year.