Debt resolutions will drive NPA recovery in next one year: Usha Anathasubramanian, Allahabad Bank
Usha Anathasubramanian that the pitch is ready for large-scale recovery of NPAs and a few big debt resolution stories would provide the desired momentum.
It has been six months since you took over the mantle at Allahabad Bank. Has there been any change the way banks work during this period?
Today, we have everybody busy with NCLT (National Company Law Tribunal). This is the one thing which is keeping everybody occupied. There are meetings, discussions around that. Resolutions of NPAs will be key driver for aggression on recovery. Today NCLT has added a flavour to NPA recovery.
Has it started paying off?
We have to wait and watch. We have not got the results yet. But plans are getting built and now we have to see how it pans out. A few cases will give you confidence.
What are plans at you bank so far as debt resolution goes?
We have exposure in nine accounts out of that 12 large accounts selected by Reserve Bank of India. We have selected 20 accounts of our own. They are in the pre-admission stage. We have told our local people to move the NCLT. We know, we have to take some haircut. But how deep is it… that is going to be the suspense.
Bankers keep saying that better days would come in another two quarters. But that “two quarters” has not come so far…
The most NPAs now are happening due to failure of strategic debt restructuring (SDR). Those are the biggest contributors. We had not seen any great success in SDR and automatically the companies started failing. So, there are pressure on provisioning, pressure on earnings.
As long as you don’t go for resolution, there will be failures. If those goes into liquidation, then there would be further pressure on earnings as banks would need to do 100% provisioning for those accounts Two quarters is too short a horizon. When resolution starts showing up, that will give some momentum. I think we need minimum a year to see the stability.
There is not much of a credit offtake as well. Also MCLR is coming down month after month. The impact is getting reflected in earnings. The ageing provisions are also catching in.
When do you see better traction in loan demand from large corporates?
Today, we only see the government projects. Road in one sector which is showing good traction. But it will take a little more time to see vibrancy in credit offtake. Everybody is moving to retail sector, MSME and micro lending. There is a lot to do.
In terms of corporate demand, people are now going into further disintermediation. People are tapping corporate bond market, which is much cheaper. People are going into the NCDs, commercial papers. So, there are other means of raising money. The strong and highly rated corporates are looking to reduce their cost and therefore their dependency on banks is coming down.
Will that be the new normal?
For good companies, yes. They ask for a combo package. When they get a loan they also ask for investment in NCDs. There is a combo package which is working when the corporate has the wherewithal, the depth to tap other resources at lower cost. India was one country which was highly bank debt oriented. But people nowadays are accessing other instruments. It is now the game of multiple choices available to the customer. It can’t be seen as threat to banks. But, we have to find new areas of business... wealth management, jacking up fee based income. We need to think differently.
Is Allahabad Bank getting into new areas?
The realisation is that we need to have new product, a revenue generating product. Our team is working on a credit card tie up. It will be a white-label card and we have set January 1 the target for unveiling it.
We are also aggressively pushing selling of life insurance. We have a strong partnership with LIC. But we earn very little from it. It was Rs 14 crore so far and I told my team to make it Rs 50 crore by March.
What are the plans you have for the next four months?
We may see 5% credit growth this year. Today it’s little below the last year’s number. We are trying to catch up. There is also a very conscious drive to go only for A rated accounts and not look at below, in order to conserve capital. However, we have seen some improvement from October onwards.
What are your projections on NPA?
I would not say we won’t have NPAs further. That will be a very utopian statement. But most of them already have happened by way of AQR (asset quality review) or by way of SDR failures. So, what will be on hand will be generally those medium sized account.
How do you see the housing market doing?
It is beginning to improve. It will take some more time. Today, supply has exceeded the demand. Everybody is waiting. The buyer is waiting for prices to come down. The seller is waiting for prices to stay or go up. There is a mismatch. There may be slight deterioration in asset quality for loss of jobs and stuff like that.
What is your capital raising plan? How much do you expect to get from the government?
Our QIP plan is work in progress. All the processes are taking shape. We may hit the market mid-December. We are also waiting for the approval from the ministry for ESPS (Employee Stock Purchases Scheme). Once it happens, we have to mobilise our staff, to be part of that and get ownership of the bank. There would be one-year locking so people will have the opportunity to exit. It may not be very big amount… we are targeting about Rs 300-350 crore.
However, there is no clarity on how much we will get from the government.
Now, with government infusing money periodically, banks have another problem at hand. There are several banks with government holding beyond 75%. What is the way out?
Government holding in Allahabad Bank is 68%. The recapitalization plan along with the bankruptcy law, the direction is set for positive transformation. This has been a difficult phase, and the time has been elongated. But the days are not very far when the robustness sets in. I think then it will be the ideal time for banks to go for FPO and bring down holding.