Federal Bank says done with NPAs; sounds positive about FY17

After reporting a massive 96 per cent plunge in March quarter net profit on massive jump in bad loan provisions, Federal Bank today said most of the asset quality worries are behind it and it is keen to expand its loan book going forward.
"We enter FY17 with a better operating run rate as we have addressed most of the large credit issues. The restructured book has come down by 25 per cent and the fresh slippages are only 10 per cent. We see a relatively more optimistic FY17," Federal Bank managing director and chief executive Shyam Srinivasan told reporters here.

In the March quarter numbers announced over the weekend, the Kochi-based bank reported a whopping 96 per cent plunge in its net income at Rs 10.26 crore, as it provisions jumped almost 11-fold to Rs 388.64 crore from Rs 39.78 crore.
Srinivasan today explained that Rs 250 crore of this was specific "event-based" like the provisioning for food loans in Punjab and towards loans to power discoms, while it also set aside proactively for loans of Rs 100 crore by providing fully (15 per cent) which can go bad due to the business' dependence on a defaulting company. He did not specify how much is the bank's exposure to Punjab, though.

Even though the bank does not have a "watchlist" of accounts which can potentially turn sour like Axis Bank has done, Srinivasan said the overall restructured book (Rs 1,592 crore) and gross NPA (Rs 1,667 crore) account for under 5 per cent of its total assets at present.
He said the bank will focus on corporate loan book and factors like its subject expertise, bad assets-saddled competition and sufficient capital buffers would help it possible to achieve this objective.

The bank, however, will continue to have its book split evenly between corporate, small businesses and retail segment, he added. It is looking at a meaningful improvement in 2016-17 as all the known issues are addressed, he said.

The bank management, however, refused to give any targets on either the credit costs or slippages or advances growth for 2016-17, and limited itself saying that the asset quality should see an improvement.
The gold loan portfolio, which has come down to Rs 5,000 crore by March 2016 from Rs 7,000 crore a year ago, has been hit by sectoral troubles, but with the price of the precious metal stabilising, the bank may look at increasing its book, he said.
Investors who were cagey initially--Federal Bank scrip was trading sharply lower in early trade--seemed to have bought the management commentary and the stock closed 1.31 per cent up at Rs 46.55 on the BSE, as against a 0.66 per cent correction in the benchmark.