With banks in a firefighting mode as far as bad loans or
non-performing assets (NPAs) are concerned, regulatory norms require them to set aside a higher provisioning. But interestingly enough, Andhra Bank’s provisioning coverage ratio (PCR) is on the way down. B A Prabhakar, chairman and managing director of state-owned Andhra Bank, clears the air in an interview with Parnika Sokhi and Megha Mandavia. Edited excerpts:
Andhra Bank’s PCR has fallen to 53.15% at the end of second quarter from 61.69% last year. Why has the provisioning been lowered despite a rise in NPAs?
The PCR is a function of the NPA portfolio and the regulatory guidelines that are in place for making provisions to various categories of NPAs. Today, our NPAs are Rs 3,013 crore. Fifty percent of these are not even one year old. So, there is no need to build in such high provisions for an NPA that is new. The PCR will increase as the NPAs become older as they move from sub-standard to doubtful and from doubtful to loss assets. The new norms on providing for restructured loans will need an additional provisioning of Rs30 crore in our case. About Rs 500 crore of loans may get restructured in Q3.
How is the bank dealing with rising NPAs?
If it’s a problem arising out of business environment, hand-holding is essential. Restructuring is the answer to the business which is affected because of the slowdown, but potential is very much there. This I am generally referring to large accounts. I think the problem is not very serious in small accounts. That is why we have been able to make substantial recovery in these accounts and avoid slippages. We have strengthened the recovery department by deploying more work force at zones and branches.
How do you see credit growth panning for the rest of the year?
So far, we have seen credit growth of 15-15.5% and I think we may end the year with 16% growth. Today, we are not getting new projects. It is not that banks have become conservative and credit growth is not happening. The industry is not making any new investments.
On the deposit front, the share of low-cost deposits has reduced. How do you plan to bring down the dependency on high-cost deposits?
We have opened new branches to see that the Current Accounts Savings Accounts (CASA) deposits grow in absolute terms. I’m sure that once financial inclusion picks up, the CASA accretion will improve in the medium term. In the past 2-3 years, credit has grown faster than deposits and particularly CASA deposits have distorted CASA growth. But we don’t see credit growth beyond 16-17%. Once credit growth moderates, I see a possibility to improve the CASA growth. With electronic transfer in place, there is no need for businesses to maintain high current account balances. They will not grow the way we have seen in the past. Our bulk deposits should come down from 27% to 20% by March 2013. Total deposit growth will be about 14% by then.
Where do you see the net interest margins (NIMs) by March 2013?
We are at around 3.15%, I think we will be able to maintain it at 3-3.1% with cost of deposits coming down. There is a bit of pressure on NIMs because of the increase in NPAs. Today, we are funding all those NPAs with deposits which means it is not earning any income.