Strain in bank's balance sheet likely to continue: Allahabad Bank CEO

Kolkata-based Allahabad Bank has set June 2019 deadline to leap back into profitability.  In an interview with Namrata Acharya, S S Mallikarjuna Rao, managing director and chief executive officer of Allahabad Bank, says strain in the bank's balance sheet is likely to continue for the next two quarters, and sectors such as agriculture and the micro, small and medium enterprises need aggressive provisioning.Edited excerpts:

When do you expect to return to profitability and come out of Prompt Corrective Action (PCA) framework?

In the next two quarters, we will still have certain strain in terms of legacy and ageing provisioning, though we expect some cases under National Company Law Tribunal (NCLT) - around 15-17 per cent - to be settled around March. The strain is expected to be there till Q4. We expect the bank to come to break-even from the first quarter of the next financial year. 

Coming out of PCA is decision of the Reserve Bank of India (RBI). All the five parameters set by the RBI are interlinked. Our net NPA, as of September 2018, was 7.96 per cent. We are looking to reduce NPA below 6 per cent by June. Once we achieve this, it will be left with the RBI to review.  

What steps are you taking to reach the target of break-even by June 2019?

We are looking to sell our non-core assets, and we are confident of realising some amount by March 2019. We are looking to divesting our stake in the insurance venture. We are weighing other options such as opting for QIP. This may not be possible at this point in time, but will be after Q3. These are the challenges in Q3 and Q4. We have taken initiatives internally, launching focal point programmes for current account and savings account mobilisation (CASA) and NPA recovery through village and mohallah contact programmes.  We are exhorting employees to reach customers, a concept we call, "each one reach one." Under this, each employee of the bank should reach out to one NPA borrower and one specially monitored account (SMA) borrower.  

What kind of realisation are you expecting from sale of assets?

We are keen on selling land in cities such as Mumbai, Lucknow, Jhansi, Nagpur, among others. We are expecting a realisation of Rs 7-8 billion, but this will all depend on the valuation amounts. 

What kind of recovery are you expecting from NCLT accounts?

At Allahabad Bank, we have 121 cases under NCLT as of September 2018, with an outstanding Rs 160 billion, of which 81 cases have been admitted, amounting to Rs 110 billion. Again of 81 accounts, we are expecting resolution in 17 before March. This will amount to Rs 40 billion. In these 17 accounts, we are expecting a haircut of 50 per cent.

Do you see more stress in terms of NPA accretion in the next two quarters?

Though NPA identification process has reached its peak in terms of large corporate accounts, there are still strains in the MSME and agriculture sectors. 

Because of the debt waiver declared by various states and also because not everybody can be covered under waiver schemes, there is impact in the repayment culture. As a result, the bank had to make strenuous efforts to make recovery. As far as the MSME sector is concerned, we expect the sector to grow in a better manner with the help of all the initiatives taken by the Centre.

With RBI pushing back the deadline for banks to set aside an additional 0.625% as capital conservation buffer, how will it affect your capital requirement?

We received a capital of around Rs 30.54 billion on November 12. Following this, our Common Equity Tier-I (CET) has gone up to 7.59 and our Capital to Risk Assets Ratio (CRAR) stood at 10.89. Thus the position, till September, shows capital is sufficient according to the Basel III requirement. The challenge for the bank will be to hold on to the capital position in Q3 and Q4, more importantly, when we are expecting higher provisioning in the two quarters. Earlier, we computed that the additional capital requirement was Rs 18-19 billion, besides the government infusion. However, there is a reduction in the requirement by around Rs 8 billion after RBI declared a requirement of .625 capital conservation buffer from March 2019 to 2020. As a result, if we can procure a capital of about Rs 10 billion by March 2019 (apart from infusion from the government). We would be able to comply with the Basel III requirement.

What is your assessment of the current situation of the NBFC sector?

I don't see any crisis in the NBFC sector as there is enough liquidity.  The problem in the sector cropped up because of extending credit, in a major way, to the real estate sector. NBFCs were not able to get repayments from lending, but now as their repayments have been rolled over, I don't see any problem in the sector. However, they will need to churn their portfolio properly.