PALLAV MOHAPATRA, Managing Director and Chief Executive Officer, Central Bank of India, says the economy will bounce back in 2020-21. In an interview with GEORGE MATHEW, Mohapatra said the crisis in the NBFC sector is over. Excerpts:
Has the economic slowdown impacted banking?
Consumer spending is discretionary and non-discretionary. Discretionary spending also includes house, car purchases. We are not seeing much impact in first home purchase, but in the vehicle purchase, we are seeing it (slowdown). But non-discretionary is not coming down ... because anyway a person has to spend. There’s huge scope in affordable housing.
When can we expect a turnaround in the growth?
My own assessment is that this is cyclical. This is not structural. The second half will be much better than the first half. It will bounce back in 2020-21. Corporate tax has been reduced. So corporates will have excess liquidity. They will spend that money ... either they will invest in mutual funds or they will put it in installed capacity.
Is the NBFC crisis over?
In NBFCs (non-banking financial companies), whatever the crisis that we had seen, that’s over. Once these NBFCs start lending — majority of NBFCs are lending — the situation will further improve. If you remove one or two big conglomerates, those medium-sized NBFCs which are doing the lending in niche areas and with a portfolio of Rs 10,000-12,000 crore, are doing extremely well. Their NPAs (non-performing assets) are lower than banking sector NPAs.
Have the problems in IL&FS and DHFL affected the banking sector?
We have done our own assessment. The sector is doing well. Whenever there’s a demand from the NBFCs, I look at three things. One is their ALM (asset liability mismatch). Cash flow can be on the contracted or historical basis. Historical means they will see inflow over a period of time. I’m comfortable with the contracted. Even if there’s a prepayment, that’s icing on the cake. I’m comfortable with NBFCs which are in the range of Rs 15,000-20,000 crore and some of the conglomerate NBFCs where the corporate governance is excellent. The third thing is ... stress in their books.
Bad loans in the sector had come recently. However, stress in power and telecom seems to be pushing up bad loan levels now.
As of now, if any telecom proposal comes, we will look into the statutory and regulatory requirements ... if these are not fulfilled, I will not take the risk. In the case of power, whatever exposure we have, that has already been recognised. Some of the exposures in power have been recognised as NPA. Resolutions of two or three major ones will be before March 31. We are not taking fresh exposure in power.
In the thermal sector, there won’t be any more exposure and in hydel, it will be to a certain extent. This is because of the lessons we have learnt ... so no exposure to both telecom and power.
Banks have now moved to repo-linked interest rates. How is it taking shape?
It has been introduced from October 1. What I see is that people have become aware of it. The only concern, which is natural, is ... this is good when repo rate is coming down. What will happen when repo goes up? Roughly 40 per cent of our total book is linked to repo. It will be linked to repo but based on the risk categorisation.
Will savers get affected by the fall in deposit rates?
No. For any customer who is having a deposit of Rs 25 lakh or above, we have linked it to the repo rate. There’s no linkage to repo below Rs 25 lakh. Majority of our customers are below Rs 25 lakh. We are managing our asset and liability in such a way that the impact on NIM (net interest margin) is not that much.
Credit offtake doesn’t seem to be picking up ...
Retail is showing more demand than the corporate. In the retail segment, more demand is coming from housing. In the corporate segment, we have seen demand in very few sectors. For example, the road sector. The other sector which is showing demand is city gas. From the cash flow perspective, these projects are viable. The third is the NBFC sector.
Will the interest rates come down further?
If you look from the point of view of inflation, there is still some scope for further reduction. The second thing is transmission. Now that it’s repo-linked, almost 40-50 per cent of the portfolio is linked to the repo rate; that will bring down the weighted-average lending rate. But now, as the second half is the peak season, there is a tendency of inflation going up. Another 25 bps cut is possible.
Do you think rural sector is witnessing any distress in view of the slowdown?
We are not seeing much stress in consumer loan in the rural segment, but we are seeing some stress in the rural housing segment where it’s subsidised by the government. In the agricultural segment, we are seeing some stress because of natural calamity and debt waiver.
When there’s a degrowth in the economy or when the economic growth is not taking place at the expected levels, the first impact is on corporates ... then it impacts MSMEs (micro, small and medium enterprises). When these two are stressed, then it may have the stress on the individuals.
After making losses for 14 quarters in a row, your bank has turned around. How did the turnaround happen?
The turnaround started in the first quarter of this year (after 14 successive quarters of losses), continued in the second quarter and we’re quite hopeful that the trend will continue in the remaining two quarters and we will come out of PCA (Prompt Corrective Action framework) by the end of the year. We addressed various issues to achieve this. The number one was to control slippages and we have been successful to a great extent. The second was to reduce NPAs. We introduced one-time settlement scheme. We have tightened the control to maintain the quality of assets.
What’s your focus now to boost growth?
We are more into better rated companies, still there’s demand from such companies. Though there’s a degrowth in advances this years, that was mainly due to the lean season. We will have an uptick in advances growth in the second half.
In the MSME sector, we go for quality and better pricing. We want to grow NIM based on the quality. As of now, our retail book is 66 per cent of the total book, which we want to go up to 70 per cent by the end of the financial year. Housing loan is now 49.8 per cent of the total retail portfolio.