BoB is reasonably comfortable with slippage: P S Jayakumar
30 जनवरी 2019
Gross NPA numbers should be reasonably steady at this point and net NPA numbers would continue to improve both on account of recoveries and provisions, says P S Jayakumar, MD and CEO, Bank of BarodaNSE -2.55 %. He spoke to ETNow.
Apart from high slippages largely due to IL&FS exposure, operating performance has been strong. What has been key drivers helping the same?
What has led to the performance is that we have been continuously working on building the franchise, the transformation journey whether it is improvement in product processes, distribution, training, technology, digitisation and the like. The end of result has manifested itself in the financial outcome.
It is interesting that for the fifth quarter in a row we are growing. Our growth in domestic credit is 15-20 per cent, in excess of 15 per cent. This quarter also on a year on year basis has been quite impressive with an average growth of 23 per cent.
Now, on all parameters, we have been discussing all that. We should see improvement whether it is growth numbers or absolute amount of net NPA as percentage, provision coverage ratio, fee income and also the quality of portfolio. When you look at all of these factors, it is a fairly consistent story of improvement all around.
As far as provisions are concerned, we have stepped up provision more than what has been required. But on an incremental basis, net slippage and net recovery matched themselves out. Although we had seen an increase in NPA on account of IL&FS, the provisions were really taken last quarters.
There is no provisional impact on account of IL&FS. All of it is gone, only principally it improved the coverage ratio. The coverage ratio is quite healthy at 73 per cent. In all, it is an improvement across all parameters, but the underlying story behind it is improvement in the total franchise in the way it is getting built up and that really is reflected or manifested itself in the results.
Net interest margin has improved. Can we expect further improvement on domestic and international NIMs?
It will continue to move upwards for two reasons. One, the international portfolio, the margin improvement are quite robust. If you go three years back, it was about less than 1 per cent, today it is close to 2 per cent. We can see continuing trend there and the domestic margin should also improve from here onwards because incremental assets that we are putting on are giving full revenue and the impact of the non-performing asset gets diluted each time with the improved provision.
The margins should improve. We should try to come to a 3.25 per cent from here on overall and that is what we are working too.
Your slippages were high and that was largely because of the IL&FS exposure. First, just on IL&FS, what will be the provisioning needed going forward and given that at an SPV level we are making only standard provisions?
Let me first correct the overall slippage this quarter ex-IL&FS is around Rs 1,674 crore and it is the lowest we have seen in the last five quarters. In fact, quarter after quarter, we see the new net slippage numbers or slippage numbers on a gross basis are lower than the prior period.
As far as IL&FS is concerned, we have an overall exposure of about Rs 4,600 crore of which Rs 1,125 crore has moved into NPA related to the parent. The balance are all with the SPVs. Now as far as SPV finance is concerned, the projects are all completed. We are also fully secured creditor. In a sense, the priority waterfall payment, we are placed ahead of others.
Overall, when we look at SPV level story, the downside risks are somewhat limited. Just to break that up further the SPV level, about Rs 2,800 crore are absolutely fully performing whether it is paying us or every other creditor.
The remaining one we are fully secured and the cash flows that are coming into the escrow account adequately service our loans. When we take all of this into picture, I see the downside from here as fairly limited even from an SPV perspective. That really is the position.
If we look at slippages ex-IL&FS, it has been a multi-quarter low. Can low slippages sustain given that stress still continues in certain segments?
Well, I would put it this way. As we look at the data points from here, give or take 5 per cent kind of variation. We think our net slippage and recovery would kind of tally. Gross NPA numbers should be reasonably steady at this point of time and the net NPA numbers would continue to improve both on account of recoveries and provisions.
We are reasonably comfortable with respect to the slippage. In fact, all the big accounts have already reflected that. Wwhatever has to slip has slipped, we do have some more accounts but they are not of a magnitude that should disturb things.
The plan is the total amount of slippages and recovery should kind of net off each other at the minimum and therefore, we should see the next NPA numbers continuing to improve in the sense that they will be lower than the prior quarters.
Analysts have highlighted two key concerns. One, need for capital due to merger and second, concerns on kitchen-sinking due to the merger. How would you address these risks?
When we look at our capital adequacy ratio, for Bank of Baroda, it is at about 12.65 per cent overall. The numbers have been stable which means the incremental loans that have been coming have been of a better quality and what has run off is of lower quality. So net-net the effect on capital from an RWA perspective has not been there.
This quarter we have had some transfer of some capital to the subsidiary on account of regulatory reasons in the United Kingdom. There is 30 bps reduction, but that would get offset as we come to the end of the year when the profit for this quarter gets added to the balance sheet.
We are pretty okay so far as capital is concerned. Now as far as amalgamation is concerned, we are doing that exercise thoughtfully. We do not have all the information as yet. Around April 1, we would make a full analyst presentation.
At that point, we will look at the strategy of the combined amalgamated institution and then see how the value for the firm will be better than the sum of its part. We have to wait for a little while, but it is unlikely we are going to do anything. I can assure you that nothing irrational will happen but if provisions have to be taken, they have to be taken whether it is in book or in the banks of the other book.
At this point, I see the downside risk of that being fairly low because times have elapsed, all the NPA numbers are out and quarter after quarter the disclosure levels, everything else has improved. The downside of that scenario happening is less.
There would be differences in the accounting policy which have got to harmonise and so what I am saying is let us just wait for a month or maybe till 1st of April and we will have all the data.
About Bank of Baroda Bank of Baroda
(“The Bank”) established on 20th July 1908 is a State-owned banking and financial services organisation, headquartered in Vadodara (earlier known as Baroda) in Gujarat, India.
Bank of Baroda is India’s leading public sector bank with a strong domestic presence supported by self- service channels. The Bank’s distribution network includes 8,200+ branches, 10,000+ ATMs, 1,200+ self-service e-lobbies and 20,000 Business Correspondents. The Bank has a significant international presence with a network of 100 branches/offices of subsidiaries, spanning 20 countries. The Bank has wholly owned subsidiaries including BOB Financial Solutions Limited (erstwhile BOB Cards Ltd.), BOB Capital Markets and Baroda Asset Management India Ltd. Bank of Baroda also has joint ventures for life insurance viz. IndiaFirst Life Insurance Company Limited and India Infradebt Ltd., engaged in infrastructure financing. The Bank owns 98.57% in The Nainital Bank. The Bank has also sponsored three Regional Rural Banks namely Baroda Uttar Pradesh Gramin Bank, Baroda Rajasthan Gramin Bank and Baroda Gujarat Gramin Bank.