PS Jayakumar, managing director and chief executive officer, Bank of Baroda,

is the co-founder of VBHC Value Budget Housing (VBHC) and Home First Finance Company. Jayakumar, 56, is career banker and has spent over 23 years in Citibank in India and Singapore starting in 1986.

Recipient of Chevening Gurukool Scholar through the London School of Economics and Political Science, he is a Chartered Accountant by qualification and additionally holds a Post Graduate Diploma in Business Management from XLRI Jamshedpur. In an exclusive interview to CNBC-TV18, Jayakumar talks on loan growth, exposure to IL&FS group, merger talks with Dena Bank, Vijaya Bank and buying loans of non-banking finance companies (NBFC).

Edited excerpts:

Q: Would you say that now things have settled down. We have seen this in several public sector banks and in yours as well, the fresh generation of slippages has clearly fallen. Now, can we look forward to relative piece on the slippage front that quarter after quarter it will decline?

A: Rather than taking that position, I would put it this way. As we look at our net numbers, which is the slippages, upgradation, recoveries and also taking into account the ageing provisions that are already factored in, I would expect that our net non-performing asset (NPA) numbers in absolute terms to decline and our balance sheet to continue to grow as a consequence of which the ratios in terms of net NPAs to continue to show improvement.

Specific on quarter-to-quarter basis, not everything is granular. We could see a little bit of negative movement, but we also feel there is a lot to be accomplished with respective to recovery and collection as well.

Q: I want to understand what the exact exposure you have to the IL&FS Group at the moment and what are the provisions you would have to make in the second half of the year for that?

A:

Approximately 15 percent of our exposure is with respect to IL&FS Group, which includes IL&FS Financial Service Ltd (IFIN) and IL&FS Transportation Networks India Ltd (ITNL).The remaining 85 percent of our exposure are on special purpose vehicle (SPV), except for a project in Dubai commercial operation date (COD) has been achieved in all of them. As far as UAE project is concerned, we do not see too much of risk over there and these projects are generating cash and they have been paying us on schedule. Therefore, we expect the downside risk on the SPV to be limited.

As far as the parent company is concerned, you have to wait for more data to emerge. At this point of time, we have taken a 20 percent provision, which is what we normally do when an account slips into an NPA. However, as on reporting date, which is September 30, all accounts of the group are in the standard category.

Q: Twenty percent provision – what does it amount to in absolute terms and what would the overall exposure be that the bank has to IL&FS?

A: The overall provision that we have taken is somewhere in Rs 240 crore level. We do not get too much into specifics as to the exposure as a matter of policy and we do not discuss individual exposures of clients. However, as I said, the SPVs are functioning, performing and paying. The parent company issues are there and they are standard. As a conservative measure, we have taken 20 percent provisions with respect to these exposures.

Q: Are you buying loans of NBFCs, do you have headroom?

A:

The usual runoff profile on the asset that we purchase are also quiet significant as these are three-five year kind of maturity adjusted for pre-payment.

So, there is a fair amount of repayment that happens on quarterly basis and to that extent, we continue to keep making further purchases.

The way we try to look at this issue is to run the assets that we are buying against our own screen and make sure that they would qualify under our criteria, which is essentially a way of saying that if these customers had come to us, we would have extended them funding anyway. We are careful with respect to the structuring and to make sure that we have all customer data. We, as a rule, try to make sure we collect the installments on them through our cash management systems and we have a control over the collateral. So, keeping all of this into consideration, it’s a reasonably well-structured bankruptcy remote structure. So yes, we would look for opportunities to buy assets with a caveat that it should meet with our screen criteria and acquisition of these assets is also a good way to grow as these customers had approached us at different point of time, very likely we would have extended to them. The other thing is that in general, the risk characteristics of these assets are a bit lower as the property is fully complete delivered, whereas deal over financing we do, we do have under construction risk and there is a seasoning and therefore, there is a score on every customer. So, on the balance, it seems to be a good asset to purchase.

Q: You did mention that the loan growth is expected to be steady going ahead. Earlier, when we spoke with you, you had indicated a 15-20 percent compounded loan growth for the full year. That would be doable, would you stick to that? Do you think things could be better, what are you looking at over the next 12-18 months?

A: There are two things we are trying to do. One is the fact that we need to grow the balance sheet. It's a normal process and our indicative number is between 15 percent and 20 percent. For the last three-four quarters, we have been closer to 20 percent than closer to 15 percent. So, it will be safe to say that we will be 15-20 percent, assuming there is some de-acceleration, which still on an average basis, would beat those numbers.

On the other hand, we also recognise that we need to build in a fair amount of fee based income that does not involve credit risk as a matter of improving the total earning profile of the firm and increasing the organic profits. So, that is also a large focus area for us.

In this quarter, particularly, the necessity for that is quite obvious as the treasury revenues that were there in the last quarter do not exist this quarter.

Therefore, we need to build the fee-income through variety of mechanism, government businesses, more collection, cash management, more wealth management programme, better work on digitisation and so on and so forth. So, both are very essential components of our strategy.

Q: What is the merger timetable?

A: It's subject to the requirements under various regulatory approvals etc. While we are in the early stage of the process, we think collectively – all of us Dena Bank, myself and Vijaya Bank – that we can accomplish those numbers by the end of this financial year. So, April 1, 2019 would be a good day to go in for a combined balance sheet of merged entity and that broadly is the timeline we are working on.

Q: The investors would want to know when will they know the exact swap ratio?

A: The work for the stock ratio has also started. There is a due diligence process, there is a valuation by valuation consensus among the three different valuers, there is a fairness opinion etc. Give or take a week. We are trying to see how we can work it by the end of November.

Q: You did mention broadly that the net NPAs will decline in the quarters to come. For the first half of FY19, your fresh slippages were Rs 4,951 crore. In the second half of the year, how much lower do you think it could be, what is the ballpark number that we are looking at?

A: I would put it this way. Whenever you look at our numbers, you always thing about risk that could potentially arise. Right now, you are talking about IL&FS as an example in this case, there are couple of matters, where the NPA has been held for court related reasons. Although, we have taken adequate provisions on them, so there are some moving parts. But what we try to do is to make sure that the net number is contend. It shows an improvement and that coupled with the aging provision would reduce an absolute amount of net NPA. That is the basis on which we are working.

If things remain as per the plan, we have prepared, we are expecting that our net NPA numbers to decline both on consequences of the aging provision as well as the fact that upgradation and the recovery would be more than the total amount of slippages that are there. That broadly is the overall position we are working to.

First Published:Nov 1, 2018 8:37 PM IST