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Mumbai-based Dena Bank has taken its board’s approval to sell unsecured small-ticket loans to asset reconstruction companies, which is seen as part of cleaning up the balance sheet. Ashwani Kumar, chairman and managing director, talks to Neelasri Barman and Abhijit Lele about his concerns on the rise in bond yields that could impact profitability in the current quarter with. Excerpts:
We are just about 15 days away from the close of the first quarter. What is the outlook in business growth?
The bank has cut on corporate credit exposure and thrust has been on retail and small-and-medium segments. There is an uptake in commercial vehicles and companies are looking for capital enhancement. Going forward, things should start improving for business. The many policy decisions that have been taken will begin to show effect in the next two-three quarters.
Treasury gains helped banks a lot last quarter. But banks have been bleeding on hardening of yields this quarter. What are its implications on profitability?
This is a market-driven phenomenon. If yields are high, it would hit the book. The effect would depend on the profile of the securities portfolio and how much of it is in AFS (available for sale) bucket.
So, you don’t expect any dramatic changes in the remaining 15 days?
The market is very dynamic. Why can’t we expect dramatic changes happening, especially when yields can move by 25-30 basis points in a short span? But of course, with yields moving up, treasury profits will be hit or will not be in line with expectations.
What is the quantum of non-performing asset sale to asset reconstruction companies (ARCs) that you are looking at this financial year?
This time we have got a policy passed from the board that all accounts below Rs 2 lakh, which do not have any security and which do not have much thrust, will be put forward to ARCs for sale. The portfolio is around Rs 285 crore and it is in the process of being sold. The number of accounts in this portfolio is 65,000. Another Rs 400 crore worth of NPAs are also on sale.
Today is the last day to receive bids for this portfolio. Earlier, only Bank of India had done this exercise of selling account below Rs 2 lakh. According to my knowledge, we would be the second bank to do so.
We are just about 15 days away from the close of the first quarter. What is the outlook in business growth?
The bank has cut on corporate credit exposure and thrust has been on retail and small-and-medium segments. There is an uptake in commercial vehicles and companies are looking for capital enhancement. Going forward, things should start improving for business. The many policy decisions that have been taken will begin to show effect in the next two-three quarters.
Treasury gains helped banks a lot last quarter. But banks have been bleeding on hardening of yields this quarter. What are its implications on profitability?
This is a market-driven phenomenon. If yields are high, it would hit the book. The effect would depend on the profile of the securities portfolio and how much of it is in AFS (available for sale) bucket.
So, you don’t expect any dramatic changes in the remaining 15 days?
The market is very dynamic. Why can’t we expect dramatic changes happening, especially when yields can move by 25-30 basis points in a short span? But of course, with yields moving up, treasury profits will be hit or will not be in line with expectations.
What is the quantum of non-performing asset sale to asset reconstruction companies (ARCs) that you are looking at this financial year?
This time we have got a policy passed from the board that all accounts below Rs 2 lakh, which do not have any security and which do not have much thrust, will be put forward to ARCs for sale. The portfolio is around Rs 285 crore and it is in the process of being sold. The number of accounts in this portfolio is 65,000. Another Rs 400 crore worth of NPAs are also on sale.
Today is the last day to receive bids for this portfolio. Earlier, only Bank of India had done this exercise of selling account below Rs 2 lakh. According to my knowledge, we would be the second bank to do so.
What is the quantum of equity infusion the bank will need in FY16?
With 15 per cent growth in credit, the equity capital requirement is pegged at around Rs 500 crore. Banks will make presentation to the finance minister on the overall capital requirement and business plans soon. We would also go for raising up to Rs 800 crore through tier-I bonds. The market rates are not very conducive for equity issuances, due to which it is not the right time to sell stocks. So we would go for bonds.
Your net interest margin (NIM) was impacted due to reversal of interest income in fresh slippages. With the cut in base rate by 25 basis points, where are NIMs headed?
NIMs will be under pressure because of the 25-basis point rate cut. But we have also cut the deposit rates. The bank's cost of funds in April-May have come down by 7-8 basis points. By June, this should be down by minimum 10-12 basis points. NIM should start showing an improvement in June quarter.
Since retail lending is one of your thrust areas, how do you plan to grow the book this financial year?
There will be new ways of campaigning and I am directly monitoring the vehicle loans portfolio with the zonal heads. We are launching a campaign next month. Since I am personally monitoring it, the results should be better. When it comes to vehicle loans, our interest rates are among the lowest. Home loans pick-up starts from Navratri. So in this period, we’ll look at developers projects approved by the bank.
You current account savings account (CASA) ratio stood at 27.71 per cent as on March 31, 2015. How much more you should be able to build up in FY16?
Our CASA might have already crossed 30 per cent because we have reduced all our high cost deposits. Until it is a requirement to meet credit deposit (CD) ratio, we will not go for bulk deposits.
