With Reserve Bank of India’s (RBI) announcing fresh guidelines on Strategic Debt Restructuring (SDR), which enables commercial banks to acquire majority stake in companies that are unable to repay loans, public sector lender Vijaya Bank believes it will act as a ‘deterrent’ to defaulting companies. The bank recorded a 29% fall in net profit for the fourth quarter of FY15 due to higher provisioning resulting in stalled growth. The bank made a provisioning of Rs 306 crore in Q4 FY15 when compared to Rs 276 crore in the year ago period. Kishore Sansi, Managing Director and Chief Executive Officer of Vijaya Bank speaks to Sharan Poovanna on how the bank plans to utilise the SDR route to overcome the problems of defaults, and other growth plans. Excerpts:
How will the bank utilise RBI’s SDR provision?
We have financed corporates in consortiums. Corporates have been defaulting despite the extensive support given to them by banks. Despite concessions, defaulters on rise. Earlier there was hardly anything banks could do. SDR is a welcome move. It’s not that we want to exert pressure but this (SDR) serves as a deterrent. We have around 18-20 big groups as defaulters. The average default on these accounts is around Rs 50-80 crore. Defaulting is present more in the form of diversion of funds. Companies will not default for the sake of business continuity.
Was Vijaya Bank part of the discussions to bring out SDR?
There was a Gyan Sangam last January, where we discussed asset quality among other issues. Our gross NPA is 2.72% and net NPA is 1.92%. Our restructured portfolio is Rs 5,200 crore.
Is the bank expecting more rate cuts? Will this be passed on to customers?
Yes, we are expecting further cuts. PSU banks pass on benefits of rate cuts to customers more than private banks. From September 2008-September 2009 rate cut was 425 bps; PSU banks passed on 125 bps while private sector passed on only 60 bps. From March 2012 to June 2013, there was a rate cut of 125 bps; PSU banks passed on 30% of this while private banks did not pass on the benefit. Normally we try to pass on about 25-30% to customers.
What is the reason for Vijaya Bank’s shrinking bottom line?
Our net profit did come down but Net Interest Margin was up from 1.88% to 2.02%. Stress was more due to provisioning. NIM will increase from Q3. We are also looking at 30-40% increase in operational profits. Our target is also to shed high cost deposit. Anywhere between 72% and 73% is good for us.
Is the bank going in for a QIP?
We have requested the government for some capital. In case this comes through then we won’t take up QIP option. Otherwise, we will go in for a QIP in Q2 or Q3. We are looking to raise Rs 500 crore. We have taken board approval for this. The AGM is on June 27 and after this we will approach the Reserve Bank.
What will be the focus of the bank going forward?
We are keen to strengthen our bottom line, Return on Assets, NIM, net profit, and are looking to increase Retail business from around 19.21% to 27-28% and housing from 21%to 30%.
What about branch expansion?
We are looking to have 250 branches more, 60 in rural areas which are mostly unbanked. We are also looking at the possibility of having representative offices in the Middle East and Singapore.