RBI seen to cut rates by 25 bps in next policy meet

Hyderabad-based Andhra Bank is aiming to get a significant proportion of the state government's business, to boost its share of low-cost deposits, C V R Rajendran, chairman and managing director, tells Manojit Saha. Excerpts:

With retail inflation coming down, the market is expecting a reversal of the central bank's policy stance, also reflected in a softening of bond yields. How soon do you expect an interest rate cut from the Reserve Bank of India?

A rate cut should come in the next policy review, by at least 25 basis points (bps). Already, crude oil prices have come down; domestically, both petrol and diesel prices have been cut. This will have a major impact on retail inflation. Commodity prices have also come down. I don't believe food prices are likely to go up. Agricultural production is good and this government is managing the supply-side issues much better.

What impact do you see on bond yields if there is a rate cut?

Yields could further fall and might reach eight per cent if there is a rate cut. But, maintaining eight per cent over a period will be difficult.

In your earnings announcement for the July-September quarter, the profit had doubled to Rs 144 crore. What bottom line do you see for the financial year?

The growth in profit was due to the base effect. It is in fact very low as compared to what we are targeting. We had committed Rs 900 crore of profit for FY15 to the government during the beginning of the financial year. We are yet to reach the proportionate level, due to rise in non-performing assets (NPAs). The issue of agricultural NPAs will be sorted in the third quarter. Asset quality is stabilising and recoveries are also strong. So, we hope to reach close to the Rs 900-crore (Rs 9 billion) figure.

Where do you see the NPA ratios by the end of the financial year?

We plan to reduce gross NPAs to five per cent, from (the present) six per cent of gross advances. We also aim to increase our provision coverage ratio to 55 per cent by the end of the third quarter and to 57 per cent by March-end. The ratio was 50.3 per cent at end-September.

How much is the loan restructuring pipeline?

It is not a big pipeline. About Rs 300 crore (Rs 3 billion), with mostly small accounts. The pipeline is much less than what we restructured in the second quarter, which was Rs 686 crore (Rs 6.86 billion).

The share of low-cost deposits, which is the current and savings account deposits, are low as compared to peers. What are you doing to correct it?

Our Casa is 23 per cent on an average basis, which is very low. Casa improves when the government business comes in. We neither get state government nor central government businesses. Now, after division of the state, we are trying get the accounts of the Andhra government. They have agreed in principle and started moving a few accounts to us. We can get the most preferred bank status from them.

So far as the Centre

is concerned, they had under the previous government agreed to give a proportionate business. It is only pending for implementation. We will get Rs 10,000 crore (Rs 100 billion) of business because of it. Taking both these, our proportion of Casa will improve to 30 per cent. Then, there is the retail segment, from which we are also trying to get low-cost deposits.

What about getting government business from newly formed Telangana?

We have some accounts there but they have identified State Bank of Hyderabad as the lead bank.

What is the impact due to the bifurcation of Andhra Pradesh on the banking sector?

Both the states are at an near-standstill now due to frequent agitations. So, neither industry or agriculture has done well in the past two years. Things are now settling, though allocation of responsibilities among ministries and bureaucrats is yet to happen, which impacted the decision making process. Both chief ministers are very active but since the administration is yet to settle down, policy implementation is yet to happen. However, both states have great plans.

Originally, the plan was to give a lot of concessions to both for compensating the revenue loss. However, the quantity is yet to be identified. If that happens, lots of industries will come. The future is definitely good but it is yet to start.

What business growth are you aiming at in the current financial year?

We are not focusing on top line growth. On advances, we are growing by 14 per cent, slightly above the sectoral average. Deposit growth is slower than the sector average because we are not taking deposits for a longer tenure, as we are expecting interest rates to come down. We are only leveraging our excess securities to garner liabilities. Once the deposit rate starts falling, we will build the liabilities portfolio.

Originally, we were targeting 16 per cent credit growth. We are growing now at 14 per cent. As credit growth picks up in the past two quarters, 16 per cent is possible. On the liabilities side, we are projecting 14 per cent growth.

Do you think it is time to cut deposit rates?

It is high time but market forces are not supportive. State Bank of India has reduced the rate but my peer banks are yet to do so.

What net interest margins (NIMs) is the bank aiming for in this year?

Our margins have significantly improved in the second quarter, 2.8 per cent as compared to 2.17 per cent in Q1. Our NIM was 3.17 per cent during 2013-14. Achieving last year's margin is difficult but we are aiming for at least three per cent NIM for FY15.

What is the status of the farm loan waiver scheme that was announced by both Andhra Pradesh and Telengana?

The scheme is almost finalised. The Telangana govt has finalised the amount and has released 25 per cent, about Rs 4,500 crore (Rs 45 billion). We got Rs 500 crore (Rs 5 billion) and have had it credited to beneficiary accounts. The Andhra government has about Rs 35,000 crore (Rs 350 billion) of liability and they are in the process of weeding out the ineligible borrowers. All of them have taken December 31 as the cutoff date. That is, loans taken before that would be a liability for the government.