We do not expect slippages to be worse than last year and in fact, it should be slightly better than last year, says N Kamakodi, MD & CEO, City Union Bank. Excerpts from his interview with ETNOW.
There have been concerns from the analyst as well as the industry experts in terms of the rising stress in the SME book. As an industry player, are you seeing the rising NPA stress for the SME sector?
A lot of opinions were expressed after demonetisation and introduction of GST, as if there was no future for the SME sector. Many of the analysts are being quoted and reams of reams written about their ratios not looking too good. Even though the data that are being discussed are quite okay, one has to see how you interpret those data. Repeatedly, we are also facing questions because one of our main clients is the SME sector. We are quite concerned and following it closely.
First of all, things are not as bad as it is being made out to be. When you analyse a larger company and analyse SMEs, there are multiple ways of looking at it. SMEs cant always have 25-30% growth year after year and have extra exponential growth rates. Most of the SMEs have a sustainable business model where the growth rate and profitability will be moderate. We have seen decades where our slippage ratio used to be about 1.25-1.5%. When we have a 1.25-1.5% slippage ratio every year, typically our SME 2 ratios were at least three times that number. In other words about 5% to 6% will be our SME 2 numbers and we will be typically having about 1.25-1.5% slippage.
We faced a huge increase in that number way back in 2014 when we saw the SME 2 ratios getting into double digits and for a couple of years, our slippage ratio stretched to even 3% and from there, it has moderated to between 1.9-2%. In fact, a lot of concerns were raised after demonetisation and all things are not as bad as it is being perceived. It is quite okay.
You have a 30% exposure to the SME book and 15% is the agri book. However, while your Q4 NPAs rose, are you seeing higher proportion of stress coming down from the SME and the agri book in FY20?
My NPA numbers and slippages are basically to the percentage of my closing advances for the year as a whole. It is quarterly operations and in some quarters, the numbers will go up and during some quarters, the numbers will be subdued. You will not be having smooth flow of slippages or recovery.
What I can definitely say is that here and there, sometimes for a year as a whole, whatever we have been hoping for incremental slippages as a percentage of closing advances for the current year, we do not expect it to be worse than last year and it should be slightly better than whatever we had last year.
There would always be quarterly operations and we do not expect any major shock based on the data we have at this point of time.
Nearly 63% of your loan exposure is to Tamil Nadu. Would the delayed monsoon impact the cash flows of your customers and lead to higher stress going forward?
This sort of aberration is probably like whatever we are facing today in terms of deficient monsoon till June third week. We had the same pattern about seven years back and it is a cyclical thing, you see now and then.
Whatever I can see from the behavioural pattern of books and whatever our data suggest, we typically used to have about 1.25 to 1.5% of the closing advances as our slippage which almost went up to 2.9-3% way back in 2014-2015. From there, every year, it has moderated from 2.8% to 2.3% to 2.2% to 2.1 %. Currently, it is about 1.9% of the closing advances.
The behavioural pattern that we see at this point of time and our expectation is that there could always be a quarterly aberrations but overall we do not expect the incremental slippages to the percentage of closing advances of the current year behaving significantly different from whatever we saw last year.
You have guided for an 18-20% loan book growth, how do you plan to achieve this and how would your product mix look?
The combination of SME, commercial trading and agriculture sector together roughly constitute about two-third to three-fourth of our loan book and we do not expect any major changes in the credit composition or book composition whatever we have seen in the last year.
We are not pressing the growth paddle too much, we are just floating may be 3-4% over and above the growth rate of the industry or slightly bigger though you are not seeing rivers of milk and honey flowing but the overall situation is pretty okay and not as bad as it is being made out to be.
We are quite comfortable and we expect the overall numbers to be in tune with the past trend whatever we have shown so far.
One of the positives for your bank has been that margins have been largely steady in the last eight quarters. What led to this kind of performance? Do you really see margins hold through or are they going to come under pressure in FY20?
In last 50 quarters, for about 45 quarters, our average net interest margin had been between 3.4% and 3.7%. The net interest margin above 4% has happened only in the lastRead More – Source