The lender expects large-ticket slippages to be restricted to two-three accounts in the rest of FY20.
Central Bank of India sees enough room for growth in good-quality NBFC, retail and MSME loans, MD & CEO Pallav Mohapatra tells Shritama Bose. The lender expects large-ticket slippages to be restricted to two-three accounts in the rest of FY20. Excerpts:
You have turned in a second straight quarter of profit. How was that achieved?
In this financial year, we were able to reduce our slippages compared to the earlier years. On account of reduction in the slippages, our credit cost has also come down. Since there were some restrictions on the loans because we are in PCA, so we really invested in the investment book in a more efficient manner so that we get a better profit on trading as well as better interest on investments. There were some recoveries in the written-off accounts also and we also got some interest on the income tax refunds we had. All these factors combined together, we were able to show a better result. Being in PCA, our bank’s deployment of funds was more into better-rated companies. That helped the bank in controlling the slippage ratio and also to book a sustainable interest income. We were also able to control costs.
What can we expect for the second half of the year?
Now in the second half, our focus will be more on building up of our loan book, which will be within the norms as per the PCA guidelines and if we are fortunate enough and RBI takes us out from the PCA, we will also be booking more advances. We have built a process into the system where now onwards, we will not compromise on the quality of assets. People say that if you focus only on investment-grade and above, there will not be much demand in the market. But, we see that there is much demand in the market even from BBB+ as well as from A and above. It depends on the pricing we are giving and our turnaround time. Since our pricing is very competitive – our MCLR is higher than only SBI and our repo-linked home loan rate is the lowest in the market – in the second half, our loan book will grow. We will also be able to restrict slippages and credit cost.
In which sectors do you see demand?
From a large exposure perspective, there is demand from the non-banking financial companies (NBFCs). It is generally thought that NBFCs are untouchable, but what we have found is that NBFCs which are conglomerates and who have spread their wings into all types of on-lending in different segments are seeing some stress. Those NBFCs which have AUM or loan books of around Rs 10,000-12,000 crore are doing exceptionally well. These NBFCs are maintaining their rating at A and above for quite some time now. Their corporate governance is much better than the one or two large NBFCs, which are in the news. There is demand from them and we are taking exposure to those NBFCs and buying pools from them. In one NBFC, we have got approval from them and work is in progress under partial credit guarantee scheme. We have already signed an MoU and loans are being booked under the co-origination arrangement. Through all these five methods, we will be increasing our exposure to NBFCs, playing within the exposure norms for each sector. Our other focus area is retail, agriculture and MSME.
How do you see slippages panning out in the quarters ahead?
Our slippage ratio has dropped to 0.9%. If I do a rough estimate, for our bank it will not go much beyond 1%, or maybe up to 1.25-1.3%. In my book, most of the corporate stress has either been resolved or recovered or recognised. There may be slippages, but large-ticket ones will be only up to two-three accounts.