NPA levels plateauing, green shoots visible, says Bank of India chief

The entire staff has been sensitised on the importance of NPA management by arresting slippages, increasing recovery and upgradation of assets.

Written by George Mathew | Published:November 13, 2016 3:17 am
melwyn-rego-759 ‘The first green shoots arising from the strategy are clearly discernible and as a result the bank has earned a profit after tax of Rs 127 crore after having incurred losses … ‘ MELWYN REGO, MD & CEO, Bank of India

Melwyn Rego, managing director and CEO of Bank of India, says management of bad loans by arresting slippages, increasing recovery and upgradation of assets are bearing fruits with NPA levels plateauing out and a turnaround in the performance. In an interview to The Indian Express, Rego said the first week would be really challenging after demonetisation of Rs 500 and Rs 1000 notes. “After that things would stabilise,” he said.

Excerpts from the interview:

After reporting huge losses and bad loans, do you see any green shoots in the banking sector?

When I had taken charge as MD and CEO a little more than a year ago, I had detailed a three-pronged strategy which was christened as Star Mission one. The first was NPA management, the second was augmentation of CASA (current account savings account) deposits and third was rebalancing of advances in favour of retail portfolio. I had mentioned this strategy would bear fruit by March 2017. However, I’m happy that the first green shoots arising from the strategy are clearly discernible and as a result the bank has earned a profit after tax of Rs 127 crore after having incurred losses in the last four quarters. The loss for FY2016 was over Rs 6,000 crore and for Q1 of this fiscal year PBT was Rs 1,116 crore loss. So to that extent, this quarter has marked a turnaround.

Has the mood changed in the PSU banking sector?

I recall that a year back, the mood was rather sombre. Notwithstanding the apprehensions at that point in time, and later on in the three quarters as well, my resolve to turn around the fortunes of the bank even became stronger. At this juncture, I am cautiously optimistic that we’re on the cusp of a turnaround to reclaim our former glory.

What’re the priorities in the next few quarters?

During this year, the focus will be on consolidation, NPA management, reduction in concentration risk on both assets and liabilities side by rebalancing the portfolio and of course capital optimisation. A high degree of focus would also be given to HR areas and enablers such as rejigging of processes and systems to make them more robust. Another focus area would be digitisation where we are looking at areas like enterprise data warehousing, customer relationship management and data analytics to facilitate cross-selling of products.

Are you able to tackle the issue of non-performing assets (NPAs)?

The entire staff has been sensitised on the importance of NPA management by arresting slippages, increasing recovery and upgradation of assets. These efforts are bearing fruits and I see the NPA levels plateauing out. Gross NPAs which were 13.38 per cent as of June 2016 has marginally increased to 13.45 per cent in September 2016 while net NPAs have declined from 7.78 per cent in June 2016 to 7.56 per cent in September. Net accretion to NPAs in Q2 of FY2017 has reduced significantly to Rs 388 crore as against Rs 1995 crore in Q1 of FY 2017. Net accretion to NPAs in September 2015 quarter was Rs 7544 crore and Rs 6781 crore in December quarter and peaked to Rs 13,360 crore March 2016 quarter. Now with these numbers it’s evident there’s a marked deceleration in the absolute NPA accretion. We have established a recovery vertical with additional senior officers posted in all 54 zones and 8 national banking groups. Asset recovery branches have been activated.

How are you managing your cost of funds?

Augmentation of CASA deposits was the second part of the strategy and that was to reduce the cost of funds. Our focus on CASA augmentation has borne fruit which is evident from the numbers which have been registered. Savings deposits have shown a growth of 14 per cent year-on-year. In terms of percentage, CASA which was 31 per cent in September 2015 has now grown to 36 per cent. We have significantly reduced the dependence on bulk deposits which are costlier. It also shows the bank’s roots have grown deeper in the system rather than depending on chunky deposits.

Given the huge bad loans in the corporate segment, are you changing the focus to retail loans?

On a year-on-year basis, the retail portfolio has registered a good growth and in September 2016 it constituted 14 per cent of total domestic credit as compared to 12 per cent last year. More importantly, home loans and loans against property have grown by 15 per cent and 21 per cent respectively. Share of retail advances has grown from 46 per cent to 49 per cent while the share of corporate loans has come down from 54 per cent to 51 per cent.

How is the bank tackling the demonetisation of Rs 500 and Rs 1,000 notes by the government?

I think the first week would be really challenging. After that, things would stabilise. Of course we have got time right up to end of December 2016. But the initial rush is that people need money to meet their immediate needs. I would think the next one week would be challenging. It’s challenging for people and banks. There’s no closing time. Clear instructions have been given that till the last customer goes, it has to continue… even if it goes right up to midnight.

Where are the interest rates headed?

Interest rates are a function of inflation. We have seen inflation has been dropping. Consumer price inflation has also been falling. Liquidity is there in the system and the general view is that interest rates would drop.