Andhra Bank?s asset quality in the March quarter was fairly strained at 5.7%, but the management believes the npa cycle might be peaking out. Chairman and managing director CVR Rajendran tells Shashidhar KJ that borrowers continue to delay interest payments as long as they can, but, in spite of that, gross npas should come down to 4% soon. He believes loan growth at his bank could be 20% this year, higher than that at other banks, which are expecting 15%. Excerpts
How is the political situation in Andhra Pradesh and Telangana going to help Andhra Bank?
Andhra Pradesh accounts for 52% of our business. There is a possibility that demand for credit in Andhra may start to pick up a little earlier as construction will start immediately in the new state. While there are limitations in lending to the construction sector, there is a 10-year tax concession available, which makes Andhra Pradesh an attractive destination for investments.
As a bank with national network and regional scale-up, I think we would like to play a major role in Andhra?s development. So we are planning to grow our credit and deposits at about 20%. Originally, we had planned to grow both deposits and advances by 16%.
Your gross NPAs were 5.7% of the loan book in March. What is the bank doing to improve its asset quality?
We believe NPAs have peaked out. According to RBI guidelines, we have classified a number of accounts in the special mention accounts (SMA) category, and there are several in the SMA 2 category, to be frank.
The 90-day culture continues with companies paying up on the 89th day to avoid being classified as an NPA. We are also trying to educate borrowers and have created separate cells to monitor them. I personally monitor 25 accounts, and the next 25 are monitored by the executive director. This covers a substantial volume of the accounts ? approximately, 7-8% of corporate advances are in the SMA 2 category.
After we initiated the credit monitoring system, it has come down by about R1,500 crore, from about R6,500-7,000 crore.
So, when this is followed up vigorously, we are sure NPA slippages will come down. We are planning to bring gross NPAs to 4% in the first quarter itself.
Are you looking to sell bad loans to asset reconstruction companies (ARCs)?
We have not sold any loans in the last one year. I feel selling to ARCs is a juggling exercise. Today, you sell an asset and show that it is a good account, and it reduces NPAs and public sentiment is improved. Otherwise, we only get 5% as cash and the rest as security receipts.
I don?t think an ARC can do a better job of recovering a loan as I have a long relationship with the customer. We had proposed a number of loans for auction, but the price we got was not acceptable.
You had said you were looking to decrease your reliance on corporate loans and increase retail lending? What is the strategy?
When I joined the bank, the corporate portfolio was around 53% of my loan book, and we want it to be brought down to 48%.
And, in retail, growth mainly comes from home loans. Compared to private banks, public sector banks always score better on pricing. It is only the turnaround time that is longer in public sector banks.
We have engaged consulting firm McKinsey for our process re-engineering. We have many retail loan factories ? our Bangalore centre is doing very well. We have also started these in Pune and Hyderabad, and will open soon in Mumbai and New Delhi.
