 "Mergers among PSBs unlikely in the next 2 years: C V R Rajendran")
C V R Rajendran, the chairman and managing director of government-owned Andhra Bank, who was at the Gyan Sangam of public sector banks (PSBs) in Pune last week, sees no scope for mergers among them for at least the next 18 to 24 months. He talks to B Dasarath Reddy on what's ahead for the sector. Edited excerpts:
There was a lot of talk about mergers and acquisitions among PSBs, ahead of the Gyan Sangam last week. Are there any proposals on the table?
No one has such an idea, unless the government pushes for it. As of now, the government is not pushing it, though the prime minister said he would like to have three or four banks of global size. They would like to leave these decisions to the boards and the shareholders of the banks concerned. And, nobody is willing to merge with anyone. Every bank has problems of NPAs (non-performing assets) or shortage of capital. To absorb one more bank and provide for the bad debt is not easy in this situation.
Maybe after two years, when things are sorted and the balance sheets are improved, they might think about it. So, in at least the next one and a half to two years, I don't expect anything on mergers with any PSB. By that time, I hope we will become a stronger bank.
Is the turnaround at Andhra Bank possible in the absence of such a possibility?
We are not a weak bank. Our problems were state-specific, partly because of the bifurcation and other political issues. NPAs have gone up mainly because the recovery had been affected on account of the loan waiver promise, to the extent of 1.5 per cent. All the infrastructure companies are based out of Andhra Pradesh, so we have naturally more exposure to these companies, which continue to be in a pretty bad shape. Once the economy picks up, these companies will come out of the present situation.
We are slowly getting out of agriculture NPAs, as the bank has already received Rs 480 crore of the Rs 2,800 crore eligible agricultural loans from the government under the loan waiver programme.
Today, of my Rs 1.15 lakh-crore of advances, Rs 21,000 crore are in problems — Rs 11,000 crore is in infra and power, Rs 8,000 crore is in the NPA portfolio and Rs 2,000-3,000 crore is in agriculture. In other PSBs, the NPAs are much higher, even percentage-wise. We have done a lot of work and probably this quarter itself, we will see the results.
Are the recoveries helping the bank to cope with the NPA situation?
We have recovered more than Rs 1,000 crore, compared with Rs 300 crore last year, and also upgraded the accounts of Rs 2,600 crore of loans. This is a record collection and upgradation in our history. However, NPAs are growing much faster because the restructured accounts are also falling into the NPA category, as they have not been able to perform according to the restructured terms. So, recovery is nullified by the NPA growth. As the growth has not picked up, in contrast to our expectations, the borderline companies are also becoming NPAs.
However, the NPA levels in the March quarter might remain at the level of the past quarter. Some infrastructure companies have started selling their projects, as they need access to fresh loans for new projects. That will help improve the recovery of loans from the infra sector.
Did the Pune meet come out with any steps to tackle NPAs and wilful defaults?
The government obviously wants us to reduce NPAs. A lot of ideas were discussed, including the creation of a bank to handle NPAs and creation of a joint asset reconstruction company (ARC) but they were not favoured. ARCIL (Asset Reconstruction Company of India) itself is the effort of banks, so why go for a new ARC, instead of strengthening the existing one? I don’t believe in transferring the bad loans to an ARC, as I don't want to transfer my pain to somebody. So far, I have not sold anything, except in one account because I was not able to monitor it. I maintain these (NPAs) in my balance sheet and tell my people this is the mistake we had committed and we will not make the same mistake if the pain is felt by us. I know the account better than any ARC.
We wanted suitable changes in the laws to enable time-bound recoveries, either through the debt recovery tribunals (DRTs) or under the Sarfaesi Act, including the closure of BIFR (Bureau of Industrial and Financial Reconstruction). There are instances where 100 adjournments were given in a single case, where no more than six can be given by a DRT. Similarly, the banks have asked the Centre to create an enabling provision in the Indian Penal Code to try wilful defaulters, as with any criminal offenders. Banks have also sought for provisions similar to that of Chapter 11 of the American Insolvency Act, for faster closure and settlement.
Do you see demand picking up in any of the important sectors?
Apart from the corporate sector, retail is also not picking up. Housing loans and car loans have slowed. Infra, power, steel and sugar are doing pretty bad, while the textile sector is doing well in AP.
Cement is doing reasonably well. If the government announces big programmes in the ensuing Budget, this might show some sign of activity after March but it will not reflect in the balance sheet of the current year. Therefore, this year we (the economy) might not grow beyond five to six per cent.
However, post Budget, things can turn different. In spite of the monsoon delay, agriculture is doing well. Commodity prices, petroleum prices have come down and the overall inflation is under control. Even if the Reserve Bank doesn't reduce policy rates, we might do so in the coming months.
There was a lot of talk about mergers and acquisitions among PSBs, ahead of the Gyan Sangam last week. Are there any proposals on the table?
No one has such an idea, unless the government pushes for it. As of now, the government is not pushing it, though the prime minister said he would like to have three or four banks of global size. They would like to leave these decisions to the boards and the shareholders of the banks concerned. And, nobody is willing to merge with anyone. Every bank has problems of NPAs (non-performing assets) or shortage of capital. To absorb one more bank and provide for the bad debt is not easy in this situation.
More From This Section
Is the turnaround at Andhra Bank possible in the absence of such a possibility?
We are not a weak bank. Our problems were state-specific, partly because of the bifurcation and other political issues. NPAs have gone up mainly because the recovery had been affected on account of the loan waiver promise, to the extent of 1.5 per cent. All the infrastructure companies are based out of Andhra Pradesh, so we have naturally more exposure to these companies, which continue to be in a pretty bad shape. Once the economy picks up, these companies will come out of the present situation.
We are slowly getting out of agriculture NPAs, as the bank has already received Rs 480 crore of the Rs 2,800 crore eligible agricultural loans from the government under the loan waiver programme.
Today, of my Rs 1.15 lakh-crore of advances, Rs 21,000 crore are in problems — Rs 11,000 crore is in infra and power, Rs 8,000 crore is in the NPA portfolio and Rs 2,000-3,000 crore is in agriculture. In other PSBs, the NPAs are much higher, even percentage-wise. We have done a lot of work and probably this quarter itself, we will see the results.
Are the recoveries helping the bank to cope with the NPA situation?
We have recovered more than Rs 1,000 crore, compared with Rs 300 crore last year, and also upgraded the accounts of Rs 2,600 crore of loans. This is a record collection and upgradation in our history. However, NPAs are growing much faster because the restructured accounts are also falling into the NPA category, as they have not been able to perform according to the restructured terms. So, recovery is nullified by the NPA growth. As the growth has not picked up, in contrast to our expectations, the borderline companies are also becoming NPAs.
However, the NPA levels in the March quarter might remain at the level of the past quarter. Some infrastructure companies have started selling their projects, as they need access to fresh loans for new projects. That will help improve the recovery of loans from the infra sector.
Did the Pune meet come out with any steps to tackle NPAs and wilful defaults?
The government obviously wants us to reduce NPAs. A lot of ideas were discussed, including the creation of a bank to handle NPAs and creation of a joint asset reconstruction company (ARC) but they were not favoured. ARCIL (Asset Reconstruction Company of India) itself is the effort of banks, so why go for a new ARC, instead of strengthening the existing one? I don’t believe in transferring the bad loans to an ARC, as I don't want to transfer my pain to somebody. So far, I have not sold anything, except in one account because I was not able to monitor it. I maintain these (NPAs) in my balance sheet and tell my people this is the mistake we had committed and we will not make the same mistake if the pain is felt by us. I know the account better than any ARC.
We wanted suitable changes in the laws to enable time-bound recoveries, either through the debt recovery tribunals (DRTs) or under the Sarfaesi Act, including the closure of BIFR (Bureau of Industrial and Financial Reconstruction). There are instances where 100 adjournments were given in a single case, where no more than six can be given by a DRT. Similarly, the banks have asked the Centre to create an enabling provision in the Indian Penal Code to try wilful defaulters, as with any criminal offenders. Banks have also sought for provisions similar to that of Chapter 11 of the American Insolvency Act, for faster closure and settlement.
Do you see demand picking up in any of the important sectors?
Apart from the corporate sector, retail is also not picking up. Housing loans and car loans have slowed. Infra, power, steel and sugar are doing pretty bad, while the textile sector is doing well in AP.
Cement is doing reasonably well. If the government announces big programmes in the ensuing Budget, this might show some sign of activity after March but it will not reflect in the balance sheet of the current year. Therefore, this year we (the economy) might not grow beyond five to six per cent.
However, post Budget, things can turn different. In spite of the monsoon delay, agriculture is doing well. Commodity prices, petroleum prices have come down and the overall inflation is under control. Even if the Reserve Bank doesn't reduce policy rates, we might do so in the coming months.