Amend IBC to blacklist frivolous bidders, says Pallav Mohapatra

Central Bank of India's new CEO and managing director Pallav Mohapatra has a challenging task at hand. He has to pull the distressed bank out of sticky loans, drive it to profitability, and get the Reserve Bank of India (RBI) to lift lending restrictions under the prompt corrective action (PCA) framework.

An old hand at stress management as deputy MD at the State Bank of India (SBI), he is not particularly perturbed at the red marks he has spotted in Central Bank. SBI's total gross non-performing assets (NPAs), after all, is almost equivalent to the total advances of Central Bank. So it is not a surprise when he says he has identified the sour areas and is confident to pare the bank's net loss from Rs 923.60 crore to Rs 600 crore by the quarter ending in December, just two months after taking charge only in September 2018.

In an interview with Manju AB, Mohapatra explains the measures he is taking to turn the bank to profitability in the fourth of the current fiscal.

How long will it take you to turnaround Central Bank of India?

With the bank under PCA, it is no doubt a challenging role. High corporate exposure in road, power, engineering, and infrastructure sectors was creating large NPAs. But the silver lining is that I am seeing encouraging signs on the recovery side. We are targeting recovery of Rs 8,500 crore of bad loans by the end of this financial year. We are also trying to bring down fresh slippages.

We are on track and expect to report a small profit in this fiscal's fourth quarter. Improving credit quality, capping expenses, stepping up recoveries and monetising non-core assets are our focus areas.

What are the non-core assets on the block? Are you also shutting branches and ATMs?

We will be monetising our non-core assets. We are trying to sell our stake in Clearing Corporation of India and State Trading Corporation of India, which together should fetch us around Rs 300-400 crore. We are also putting some of our residential premises and the training college up for sale. We expect to rake in Rs 500 crore from all of this.

We are also rejigging our branch and ATM network. The bank has closed or merged about 50 branches and we hope to do another 24 branches this year. We have identified 100 rental branch premises, which will either move to low rental areas or be merged with existing branches.

We are looking to make ATMs profit centres so that the bank's interchange fees rise. About 660 unviable ATMs would be shut or shifted to better locations. Unless we have 100 hits in a day, the business is unviable. Most of the ATMS there were shut were owned by third-party operators.

Are you getting out of foreign operations?

We will continue our investments in Indo-Zambia Bank (a joint venture between the government of Zambia, Bank of India, Bank of Baroda and Central Bank of India) as it is a profit-making venture. The Zambian government does not allow stake sale to an outside investor. We can only sell it to our JV partners.

We have shut down our representative offices. We had them only in Hong Kong and Kenya. Rep offices are generally not profitable. They only help to mobilise business for the domestic operations.

What is the status of your exposure in IL&FS?

We have a debt exposure of around Rs 1,400 crore in 14 accounts. Of this, Rs 100 crore has already slipped to being an NPA in the second quarter. But there was also a recovery of Rs 100 crore. We have another Rs 200 crore of exposure in IL&FS's commercial papers (corporate bonds). There was a moratorium on the recovery for 90 days. After NCLT (National Company Law Tribunal) refused to extend this moratorium by another 90 days, the Ministry of Corporate Affairs (MCA) approached the NCLAT (National Company Law Appellate Tribunal). So we cannot undertake any recovery until the moratorium is lifted. The remaining Rs 1,200 crore will thus slip into NPA this fiscal. Outside IL&FS, we have received Rs 856 crore from five NCLT cases.

But aren't NCLT cases getting delayed?

Delays in the NCLT is causing a huge loss of public money. Some bidders and promoters are going to higher courts to get a stay on the auction. After being admitted into the NCLT in some cases it is now one-and-a-half years and the matter is still not settled. We are losing huge interest earnings and the money is getting stuck in litigations.

The issue of frivolous bidders is another problem. After being selected as the highest bidder there is no money to pay up. To prevent this I feel there will be need to amend the Insolvency and Bankruptcy Code 2016 where there will be a requirement for the bidder to show the proof of the money in his bank account or get a bank guarantee. Frivolous bids delay the process by another nine months. Banks will also blacklist these bidders by taking legal recourse.

Besides NCLT, what will be the other methods of recovery?

We have a one-time-settlement (OTS) scheme for all borrowers of up to Rs 1 crore which have turned into NPAs from a prolonged period. This is a non-discretionary or non-discriminatory scheme where the branch manager does not have the discretion to reject any application unless, of course, it is a fraud account.

In January, we are putting up about Rs 9,000 crore of assets on sale to the Asset Reconstruction Companies (ARCs) at 100% cash. We expect to recover about Rs 2,500 crore through this route, which can contribute to our profit account.

Will you see credit growth?

On a net basis, the credit growth on the corporate book will be negative as there will be repayments. We have reduced our risk-weighted assets by 15%. This is freeing up capital for lending to assets rated 'AAA', 'AA' and 'A'. Under the corrective action, the bank needs to bring down its risky assets.

Instead of the credit account, we will focus on the investment book by investing in commercial paper. Since October, we have actually invested Rs 2,000 crore in corporate bonds including NBFCs and are planning to do another Rs 1,500 crore during the remaining period of this fiscal. Asset pools purchase from NBFCs (non-banking finance companies) will go into priority and affordable housing. We are looking to push up the retail, agriculture and micro, small and medium enterprises (MSME) portfolio to 70% of our total advances, up from its current level of 57%. Corporate credit will be reduced from 43% to just 30% of the bank's total advances.

But if your risk-weighted assets come down won't the net interest margins dip?

I am trying to grow the NIM (net interest margin) from 2.6 to 3% by the first quarter of next fiscal. Since we will focus on top-rated companies, the spreads may not be high. So I will bring down the cost of funds. We have decided to bring down our bulk deposits while CASA (current account and savings account), which is at 42%, should climb to 48% of our total deposits. The zero interest current accounts are 9% of the total CASA. This will be pushed up to 13% of the CASA pool.