Federal Bank reported a fairly robust set of quarterly earning numbers Wednesday with net interest income rising 30 percent quarter on quarter to Rs 625 crore while net profit jumped 25 percent to Rs 277 crore.
This was even as year-on-year, other income declined while provisioning rose.
On the asset quality front, gross non performing assets (NPA) declined from 2.83 percent to 2.46 percent while net NPA fell from 0.83 percent to 0.74 percent.
Also read: Federal Bank Q4 net up by 24.94% at Rs 277cr
MD and CEO Shyam Shrinivasan, in an interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy, said the results were encouraging thanks to some "disciplined credit lending" the bank had been doing for many quarters. "The NPA challenge has been very squarely addressed by us."
"There is an elaborate process that we have gone through," Shrinivasan said, on how the bank's asset quality has improved in an environment several other banks are struggling.
Below is the transcript of the interview on CNBC-TV18.
Latha: A very good set of numbers. There seems to be a distinct improvement on your non-performing loans (NPL). Would you say the worst is over and things will look better in the current and the next quarter as well?
A: Yes, the numbers have been good. Q4 in particular both sequentially and year-on-year was quite encouraging and this is largely on the strength of some disciplined credit lending that we have been doing for many quarters now.
The reduction in NPL -- both gross and net have come down substantially -- is on a denominator that hasn't grown significantly.
The outlook remains quite confident in the coming quarters. The NPA challenge has been very squarely addressed by us both through management of new accounts as also reduction in slippages and recoveries increase.
So on balance, it is a good outcome. NPA has done well.
Sonia: I wanted your view on the margin picture going ahead. This time, your reported margins were 3.59 percent -- there was some one-offs in that on account of interest from an income-tax refund etc -- but going ahead, in FY15, what kind of net interest margins (NIMs) do you think Federal Bank could hold on to?
A: If you pull out the one-off benefits and look at full year FY14, it is around 3.3 percent. Our outlook for the coming year is in the same zone -- 3.3-3.35 percent -- because this year there was a sharp reduction in gold loans for the first nine months.
It is only in the last quarter that we grew Rs 360 crore [in gold loans]. So, if that run rate continues in FY15, which it should, I see NIMs to be somewhere in the region of 3.3-3.35 percent.
Latha: Gold loans have become popular again after the nine-month downtick?
A: No. If you recall last year in the fourth quarter (March 2013 quarter), there was a significant correction in gold price. Thereafter, business remained very volatile and we took extreme caution to ensure that we don't run into a problem both for ourselves and the customers.
As gold prices have stabilized, the business is back to normal. The steady-state run rate is about Rs 100-150 crore per month incremental, which will continue in FY15 unless there is material volatility in commodity prices, which is not expected for now.
Latha: You have had a one-off in IT refund of about Rs 100 crore and then a non-tax provisioning also coming lower because of a reversal of provisioning. Should we take both these as one-offs?
A: The IT refund consequence is the tax benefit so they are linked. But on a contra, there are one-offs on account of increased provisioning for MTM impact on treasury. That is almost the same Rs 100 crore that is the tax benefit.
For the full year period, the mark-to-market impact is Rs 100 crore. One hopes the interest rate environment turns more supportive in the coming year.
Latha: What is your guess though?
A: For the first half we don't see significant changes [in interest rates]. We will have to wait for the full year.
Latha: Fresh restructuring has been higher. What is the status there, should we continue to expect some more restructuring, is the economy still showing that kind of pain?
A: Our restructured for Q4 is Rs 327 crore and there is no pipeline for restructuring now of any significant nature. Of that Rs 327 crore, one account was a discom account, which in the normal course was to be restructured.
The others are really smaller tickets in the Rs 20-30 crore space. There is really no significant restructuring pipeline that we carry right now.
Sonia: Overall your asset quality has improved this quarter around. That is a relief to see at a time when so many banks are struggling to hold their asset quality. Do you expect stressed loans to decline further in FY15 and what kind of gross NPA do you think Federal Bank could hold?
A: The 2.46 percent gross NPA is the best ever in pre-2008 crisis. So for us, it is quite significant and I mentioned this is on a denominator which hasn't grown profoundly. So actually the improvement is slightly not showing up as well.
But the greater point is: the reduction in slippages sequentially or year-on-year is quite marked because of the underwriting difference that we have made and there is an elaborate process of what we have gone through over the years.
The gross slippage for the full year was half of last year in a year where the environment has gone through a lot of stress.
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