Public sector lender Allahabad Bank expects margins to be under pressure in the current quarter due to RBI?s recent measures, said Shubhalakshmi Panse, CMD of the bank. In a telephonic interview with Aftab Ahmed, Panse said that bad loans could rise till the third quarter, but she remains hopeful of a turnaround in the fourth quarter. Excerpts:

Do you think the banking sector will bounce bank in Q3?

I was of the view that in the third-quarter things will turn around. But due to the recent turn of events it does not seem the stress in the banking industry will be less in the third quarter.

Allahabad Bank?s gross NPA in Q1 rose to 4.78% from 3.92% in Q4. At what levels do you see Allahabad Bank?s NPA in Q3?

In percentage terms, we expect NPAs to rise, but in rupee terms, NPAs must be contained as credit growth has not picked up right now.

When do you see the banking sector recovering?

As I said, in the third quarter stress levels will not change, but due to good monsoons, agriculture is likely to do well. Due to fall in rupee, exporters are also doing really well. So given all theses factors, we should see a turn around in terms of bad loans and also in terms of bad assets. Because of the current condition, the recovery has been pushed back by one quarter.

What is the impact on net interest margins (NIMs) after a series of steps taken by RBI to support rupee?

Cost of funds has definitely gone up due the measures announced by RBI and since our base rate has not been changed, we expect our margins to be under pressure in the current quarter

So are you planning to tinker with your base rate any time soon?

Immediately we have no such plans. We will wait as of now.

A lot of leveraged infrastructure companies to serve their debt are planning to sell their non-core assets. In your view, will they be will they be able to do so in the current environment?

There are opportunities for those buyers that have deep pockets and are looking for buying assets for lower valuation. The kind of assets a particular company plans to sell is also a factor. For instance, land parcels could be sold easily. But as a whole, I will not be able to say whether this measure of trying to sell assets to repay debt will be successful for every company or not. It completely depends on the company and the nature of its assets.