With around R85,000-crore loan portfolio and a profit of Rs 726 crore in FY15, India’s Exim Bank has taken an aggressive approach when it comes to containing bad loans. In an interview with Shayan Ghosh, Exim Bank chairman & managing director Yaduvendra Mathur says that although its comfort zone is export finance, the bank takes part in term loan consortia owing to performance targets set by the government. Excerpts:

Which sectors would you focus on financing?

We would like to be more with mid caps and encourage them to go in for overseas investments, finance them to set up subsidiaries and grow overseas by acquiring companies. So, we are more of a niche bank. For instance, there is a category — pharmaceuticals — which has done extremely well because we have helped them acquire companies and funded acquisition of technology. Likewise in six or seven sectors, the bank’s track record is the last 20 years have been stellar.

Our gross non-performing assets (NPAs) at 2.94% are below some of the best in the industry and our per employee profitability is fantastic as we have only 300 employees in 18 locations who can achieve a profit of Rs 720-730 crore.

Are you concerned about bad loans? What are you doing to tackle them?

We have to be very careful going forward that no new NPAs get built up — that challenge is enormous. But beyond a point, we cannot do anything expect taking over management of companies. We have done one aggressive takeover of a company in Italy. There was a borrower of ours who had taken a standby letter of credit (SBLC) from us in 2009 and we had thus stood guarantee to a loan given by another Indian bank. The Indian bank was not paid, which, in turn, invoked our SBLC and exited, while we were left with the pledged shares of the acquired company. That Indian parent company is sick, but that asset in Italy is a performing asset.

So, we invoked the voting rights of the pledged shares and removed the promoter from the board. Exim Bank has appointed KPMG as the chairman of the Italian company. The bank now has three board positions as we are now owners of the company and we will be making an international sale of that company to recover our dues.

What do you think of the joint lenders’ forum (JLF) system?

Exim Bank is in line with the corrective action plans and we are eagerly watching the turnaround strategies rolled out and they are fully in accordance and alignment with other commercial banks. There is hardly any case where we are the lead, Exim bank has always been a follower in the syndication deal.

We don’t really get associated with any steps that we can take proactively because we are very small and always below 10% of the exposure for large accounts like Bhushan Steel and other big ferrous exposures.

I agree that infrastructure bad loans are a big challenge for the country and the government has been quite blunt in acknowledging that steel prices are falling and dumping is happening. One must remember that consumers of steel are also a big lobby. For instance, the automobile sector is gaining and many other importers of steel are very happy.

In fact, they have lobbied to the government not to impose dumping while the banking sector lobbied to impose dumping to save our NPAs.

What are the challenges you face?

As per our loan policy, we can lend to any company that is doing more than 10% of its sales in exports. So, most companies which are of a fair size are doing 10% or more as exports. This is not our niche area, but we get into them is because the government has also given us a profitability target. Like other commercial banks, Exim Bank is also told by the banking ministry that you got to achieve this net interest margin (NIM) and this return on equity (RoE).

So, we are also under the same challenge on how you earn profit. When you lend at the behest of government, I am told by the government that I can charge 1% and you will get only 2% from the government, so my spread is stuck at Libor plus 300 basis points (bps).

But still doing a Libor plus 300 bps with, for instance, the government of Bangladesh guarantee and a Indian government guarantee leaving 20-30 basis points at the end of a 20-year period, which is good return and is risk-free. Moreover, I do not take an NPA provision if I have a default by a sovereign as I get regulatory forbearance.