Congratulations for a resilient quarter. There was good NII growth and controlled provisions which further supported profits and stable GNPAs versus the proforma GNPA. What led to such a resilient quarter?
This year, right at the beginning, our objective was to make sure that we preserve and do not do anything silly because the odds were stacked against banks. So all through this year, we focussed on three things. a), capital conservation; b)ensuring that we are able to do businesses that are more granular in nature and lower on capital demand and hopefully with a little better margin. We saw that happened in case of gold loans. c) we made our strong points stronger, in this case, the deposit portfolio.
We had remarkable progress on our CASA in particular. It grew 26%. In terms of capital conservation asset mix which is a little more higher margin but lower both on capital requirement and risk and third in terms of deposits. At the end of this financial year that just went by, we met most of those objectives and as a result of that, our net NPA improved in comparison to the previous year and we made very generous provisions. Otherwise, our profits could have been much higher. We increased our provision coverage from 53% to 65%, every 100 bps is almost Rs 40-45 crore. So we have added Rs 500 crore of provisions in FY21 compared to the previous year but that is leaving us with a stronger balance sheet. On balance, it has been a good year given the challenges and positions are reasonably okay for the period ahead which looks even more challenging.
The Covid second wave has been severe. How have the customer cash flows shaped up so far? Do you see the need for higher provisions in the rest of FY22 versus last year?
While it is too early to comment, the second wave in the very early stages of this financial year has led to stress. There are local lockdowns and most of the bigger markets have had some kind of lockdown. Like last year, our objective is to preserve both portfolio quality and capital. I believe we will make sure that our current coverage ratio continues whatever the situation.
So at 65% coverage ratio for the kind of portfolio which we have — a largely secured book — we should be able to come out quite okay at the end of this financial year assuming that the current impact of the current pandemic does not last for very long and by end of this quarter or early next quarter, some momentum is gained.
But our underlying principles remain the same – preserve and conserve capital and preserve the portfolio quality and keep our provision coverage at least at 65% for a largely secured book that we have.
Tell us a little bit about the performance in your segments in retail, corporate, SME as well as gold loans. What has been the impact of the second wave so far?
There are no challenges in the corporate and gold loan segments — gold due the nature of the business and a pristine corporate book. Corporate and gold loans make up for more than half our portfolio and there is no issue there.
Retail, small businesses and agri are certainly susceptible to the environment. Last quarter showed the effect of the full year moratorium being withdrawn and there have been slippages higher than our normal run rates but that is only to be expected in the current environment and if at all the situation continues to be as dire or similar, we should expect a similar kind of slippage for the next two quarters, which is therefore in the run rate.
I do not visualise anything differently from what we saw in Q4 for the coming quarters. One hopes that as the vaccination effect fully plays through, by at least the calendar year end, we should reverse the trend. So corporate, gold should not have an issue, segments that are more vulnerable to this which are self employed and businesses will face challenged but thankfully our is a secured book and that helps keep the overall portfolio in good stead and that is why our gross and net is in the top three, four banks in the country.
Your loan growth has been a bit slow so far. Has the Covid pandemic led to slower disbursements and slower growth and is that going to be the trajectory for FY22 as well?
No, I think we have never shied away from growing. Last year also our growth was much higher than most of the other players in the industry. We just looked at the comparison. We are in the top four, five banks that have grown credit 8-9% full year.
Given the opportunity we will be back with credit growth but just as things were looking better in March, in the quarter of March we grew 5% for the quarter and so it was like 20-22% growth. Unfortunately, April has been dull so has been a large part of May.
My guess is till end May-early June, it will be quite sort of muted. When things return to normal, we will be back in the market growing the paces but we are not going to go big on unsecured. We would be happy to participate in businesses which are volume and demand led, depending on consumer sentiment in those places. Gold will continue to be an important part of incremental growth and as opportunities open up, we will be there but we are not constrained either by credit appetite or capital. It is the opportunity in the market that we should pursue.
What is the kind of capital raise that we can expect for FY22? Given the challenging environment, would you now be a little more cautious before making any acquisitions there?
First question, last year we had an enabling resolution for Rs 4,000 crore, but we did not use any. We will go to the shareholders for a similar sum or whatever this year and look for every opportunity. The last time we raised capital was in July 2017, where we did Rs 2,500 crore through a QIP. So it could be any number depending on how the situation shapes up.
As for acquisition opportunities, we are interested in the MFI business but I would be extremely watchful on when to go and whom to go after because the environment has been challenging for that segment. They themselves are going through pandemic related impact and we will be watchful but we are interested.
