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    Central Bank will grow without compromising on loan quality: Pallav Mohapatra

    Synopsis

    A NIM of 3% is good enough because higher the NIM, there could be a compromise on quality.

    Pallav Mohapatra-1200ET Now
    Our watchlist is currently at Rs 2,000 crore. We are trying our level best and even if they slip, there will be recovery in other big accounts.
    Central Bank of India reported a second straight quarter of profits despite restrictions emanating from its inclusion in the RBI’s Prompt Corrective Action scheme. Its CEO Pallav Mohapatra is optimistic that his re-orientation of the bank’s strategy would ensure that the worst is behind. In an interview with Joel Rebello, he said the bank will be on the growth path soon. Edited excerpts:

    You have a quarterly profit, but the overall book shrank. With the bank in PCA, how do you see the future?
    We have had to go through some tough decisions in correcting the quality of our portfolio. Our loan book de-grew because repayments in standard assets went up as we took a call last year to build risk mitigation. We rationalised our loan pricing without compromising on quality. This dented our portfolio, but we have received good quality business. Only SBI MCLR is lower than ours. Our low risk and medium risk housing loan rates are also lower than SBI. We can do this because we have a comfortable low cost funding ratio and are focusing on savings deposits from individual accounts. We have a CASA of 45.54% which will go beyond 46% and I want to pass on this benefit to the asset side. If I increase my pricing, may be I will get a NIM of 3.1% to 3.25%, but I believe that a NIM of 3% is good enough because higher the NIM, there could be a compromise on quality.

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    Your slippages have fallen this time but is it sustainable?
    The slippage ratio has come below 1% at 0.9%. Frankly speaking 0.9% is not sustainable, it can go to 1.25% or 1.20%. But the days of 2% or 3% are gone because quality controls have been put in place. Similarly, the cost of credit which used to be something like 3% has come down to 1.43% may go up by 20 to 25 basis points. This is because our model for risk assessment has moved from collateral based to cash flow based. There were products more on the lines of loan against property. This we are moving to 100% cash flow monitoring even with 50% collateral. I strongly believe that cash flow is a better collateral than these properties which are illiquid.

    There are many companies which are precariously positioned. What if some of them default? How well are you prepared?
    Our watchlist is currently at Rs 2,000 crore. We are trying our level best and even if they slip, there will be recovery in other big accounts, not only from NCLT but outside of it also. That will not have much negative impact on my provisions. If there is an additional provision, there will be a write-back which will be more than slippages. Large corporate accounts as per the watchlist of more than Rs 100 crore will only be two or three accounts. This also includes agriculture and MSMEs. We have board approval for engagement with resolution agents and special situation funds. There we are getting a lot of interest from investors through sale through ARC, Swiss challenge or one-time settlement. The haircut will be much less than the provision which we are holding against those accounts and there will be right back.

    But when does Central Bank come back to normalcy, meaning out of the PCA?
    We are above the RBI mandated parameters on capital adequacy at 12.69% compared to 11.50% by March 2020 set by RBI. Our leverage ratio is more than 4% versus 3.50% needed.

    The only point is that our net NPA is at 7.9% above the 6% mandated by RBI. The reason is not recovery or reduction in NPA but the denominator. If my advances had been at September 2018 levels my NPAs would have been below 7%. So now we are focusing on booking more advances and without compromising on quality.

    Stress in the NBFC sector hasn’t gone away. How do you beat that?
    The market signal is that NBFCs are untouchable. But I disagree. Whatever new loans we are doing we are doing through three segments — roads under HAM (Hybrid Annuity Model), city gas projects, and NBFCs. The problem in NBFCs is where there is a conglomerate and they have different verticals under the core investment company. The problem is where the group does not believe in corporate governance. But the rest of the NBFCs where the portfolio size is Rs 10,000 crore to Rs 20,000 crore are doing exceptionally well. They don’t want to grow beyond their means and their AUM is all right. These medium size NBFCs and large one with good corporate governance don’t have any problem.



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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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