Shubhalakshmi Panse had to clean up the balance sheet of Allahabad Bank after she took over as the chairman and managing director. Panse, confident that the asset quality will improve, tells Rohit Khanna the bank?s margins will improve to 3% by the end of the year. Excerpts:

Going by the second-quarter results, it seems that quality of assets has been a big challenge for you. How did you tackle that?

When I took over, we had just completed the RBI inspection and NPAs worth R1,800 crore were identified. So, we recruited a new GM for credit monitoring. The moment an account crosses a limit regarding repayments, it comes on his radar. From that point we start following it up and don?t wait till it becomes an NPA. We have also revised recovery targets and given daily targets to zonal heads. So we have achieved the target of R900 crore by December end. We have also identified NPAs of around R540 crore to sell off to ARCs.

Apart from NPAs, what has been a cause of concern in last couple of quarters?

Our credit growth is around 18-19% and deposit growth is around 15-16%. Casa growth is around 30% of total deposits. The psyche of depositors has changed and the tendency is to keep it in term deposits instead of savings accounts. So far we have opened more than 200 branches against a target of 250. We have opened them all over India but we are more interested in the western and southern side.

Provisioning seems to have made a dent in your profits in the September quarter…

Our profit position has been quite healthy. Even though we had substantial NPAs, we made good profits. We have also made a provision of R40 crore towards new wage negotiations ? very few banks have done that. This year we have already provided R40 crore taking that into consideration.

Your NIM improved in the December quarter. But do you see pressure on NIM?

We had a good recovery from written-off accounts. We have also offloaded bulk deposits and our cost of deposits came down. We have reduced our base rates and brought it down from 10.5% level. Moreover, as we our offloading our bulk deposits, our cost of deposits would also come down. With these we are sure that our NIM will be around 3% by end of the year.

How do you see growth in credit for the coming quarters?

Globally, the US is showing a good amount of change and China is also showing good growth rate. Apart from that, with the initiatives taken by the government so far, the Indian economy is also showing some kind of recovery. With these three factors, the second half of 2013-14 will show us good growth at around 19-20%, though the first half is likely to continue at 18% growth in credit.

Your non-interest income came down in the December quarter. How would you improve that?

We did not have a good growth in the first two quarters of 2012-13, but in the third quarter we did well and we will do better in the current quarter too. The major share is the processing charges and as we had good credit growth, earning from processing charges will go up. Only point of concern is the share market where we are seeing quite a few ups and downs. If it is volatile, there could be some dent due to MTM losses.

Are you comfortable with the CAR position at present?

We were promised R1,500 crore in 2012-13, but we did not get that. This year also the finance minister has made a provision of R14,000 crore in the Budget. We are sure of getting that next year and with that we will be in a very comfortable situation in terms of capital adequacy and Basel III.