 "Worst NPA trouble behind us: Rakesh Sharma")
Rakesh Sharma joined Lakshmi Vilas Bank as managing director and CEO in March 2014. Prior to this assignment, he was State Bank of India (SBI)’s chief general manager for Patna circle. In an interview with Somasroy Chakraborty, Sharma says the old-generation private sector bank is confident of trimming its bad assets in the coming quarters, despite the uncertain macro-economic environment. Edited excerpts:
Are you worried about the deteriorating health of bank credit?
There is pressure on credit quality. But we have tightened our loan sanction process, strengthened credit monitoring system and stepped up recovery efforts. These initiatives have helped reduce our bad loans. Our gross non-performing asset (NPA) ratio was at 3.96 per cent at the end of June, compared to 4.19 per cent in March and 5.60 per cent in December.
What is making you optimistic?
We have strengthened our systems and processes. I’m personally monitoring the recovery efforts in some of the stressed accounts. We are now shifting our focus to retail and SME (small and medium enterprise) segments. Also, as the economy improves the stress in the system will reduce.
The credit demand has remained largely muted. What are your growth expectations for 2014-15?
We expect 20 per cent growth in our advances on a year-on-year basis. But this is mainly because our base was small. In the first six months of this financial year, the growth has been slow. With the festive season beginning, we are hoping for some improvement in demand. There are a few good proposals that we are currently evaluating, which will help us grow our loan portfolio.
With deposit rates staying high, do you expect pressure on your net interest margin in the coming quarters?
Our net interest margin was at 2.5 per cent at the end of the first quarter, compared to 2.87 per cent at the end of March 2014.
We are aiming to improve it to 3 per cent by the end of this financial year, by increasing the share of low-cost CASA (current account savings account) deposits in our total deposits.
We are looking to expand our CASA ratio to 16.5 per cent from 14.22 per cent. We have started offering higher interest rate for savings deposits over Rs 1 lakh.
Also, we have restructured some of our term deposit rates in September after evaluating our asset-liability position.
The bank’s capital adequacy ratio was 10.9 per cent under Basel-III norms at the end of March 2014. How much has been the improvement in your capital adequacy ratio following the rights issue? Are you planning to raise more money in the near-term to strengthen capital base further?
We raised Rs 406 crore through rights issue, which has improved our capital adequacy ratio to 14.6 per cent. At this moment, we have sufficient capital to finance our business growth.
Hence, we have no immediate plan to raise capital in the near term.
Are you worried about the deteriorating health of bank credit?
There is pressure on credit quality. But we have tightened our loan sanction process, strengthened credit monitoring system and stepped up recovery efforts. These initiatives have helped reduce our bad loans. Our gross non-performing asset (NPA) ratio was at 3.96 per cent at the end of June, compared to 4.19 per cent in March and 5.60 per cent in December.
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I believe we have seen the worst in terms of asset quality deterioration and now it is behind us. We are hopeful that we will be able to improve our credit quality further and reduce the gross NPA ratio below three per cent by the end of this financial year.
What is making you optimistic?
We have strengthened our systems and processes. I’m personally monitoring the recovery efforts in some of the stressed accounts. We are now shifting our focus to retail and SME (small and medium enterprise) segments. Also, as the economy improves the stress in the system will reduce.
The credit demand has remained largely muted. What are your growth expectations for 2014-15?
We expect 20 per cent growth in our advances on a year-on-year basis. But this is mainly because our base was small. In the first six months of this financial year, the growth has been slow. With the festive season beginning, we are hoping for some improvement in demand. There are a few good proposals that we are currently evaluating, which will help us grow our loan portfolio.
With deposit rates staying high, do you expect pressure on your net interest margin in the coming quarters?
Our net interest margin was at 2.5 per cent at the end of the first quarter, compared to 2.87 per cent at the end of March 2014.
We are aiming to improve it to 3 per cent by the end of this financial year, by increasing the share of low-cost CASA (current account savings account) deposits in our total deposits.
We are looking to expand our CASA ratio to 16.5 per cent from 14.22 per cent. We have started offering higher interest rate for savings deposits over Rs 1 lakh.
Also, we have restructured some of our term deposit rates in September after evaluating our asset-liability position.
The bank’s capital adequacy ratio was 10.9 per cent under Basel-III norms at the end of March 2014. How much has been the improvement in your capital adequacy ratio following the rights issue? Are you planning to raise more money in the near-term to strengthen capital base further?
We raised Rs 406 crore through rights issue, which has improved our capital adequacy ratio to 14.6 per cent. At this moment, we have sufficient capital to finance our business growth.
Hence, we have no immediate plan to raise capital in the near term.