Karur Vysya hopes for credit uptick, lower NPAs in coming quarters

Karur Vysya Bank posted a stable Q1 with net profit growing 8 per cent to ₹146 crore and net interest income up 13.7 per cent.

Can you run us through the highlights of the quarter? You have seen some uptick in non-performing assets (NPAs) even though it is still lower than 2 per cent. What’s the outlook going ahead?

On the business front, deposit grew 11 per cent mainly driven by CASA and retail deposits. CASA grew by 15.7 per cent, of which savings bank deposit grew 22 per cent. On the asset side, credit growth has definitely remained tepid for the past few quarters. We find that the credit pick-up is much slower. Any way, this being the slack season, it is to some extent expected.

But there have been prepayments by large corporate accounts, more than what we expected, to the tune of ₹3,040 crore. Also, the conscious decision to move away from large corporate consortium accounts has lead to much lower growth in the corporate side. However, net interest income increased by 13.7 per cent, non-interest income remained flat and operating income increased by 9.93 per cent. Net profit increased by 8.7 per cent mainly driven by improvement in the margin.

Net interest margin was 3.52 per cent at the end of Q1 compared with 3.30 per cent in last year’s Q1. On the asset quality side, there has been a little bit of increase in the gross NPA, from 1.3 per cent in March 2016 to 1.79 per cent at the end of June 2016. In fact, compared with June 2015, when NPA was at 1.91 per cent, it is still lower at 1.79 per cent at the end of Q1. Net NPAs were at 0.79 per cent compared with 0.88 per cent in last year’s Q1; but it is slightly higher compared with the March level of 0.55 per cent. Our provision coverage ratio (PCR) continues to be 78.5 per cent, much above the mandated 75 per cent.

The uptick or slight increase in NPAs is expected as the sluggishness in the economy is still continuing. In view of this, companies which are slightly weak are still facing problems or struggling to meet their obligation of paying interest instalments. So we did expect a little bit of slippage. But slippages in Q1 was still lower than Q4. During the whole of FY17, we do expect the slippages to be slightly higher, but not in the range of what happened last year. We should be in a position to manage this in case the growth comes back.

Towards the end of the second quarter or in the third and fourth quarters — when we generally see the seasonal pick up in credit — we hope to see some uptick in the credit growth and an improvement in the quality of assets where we will be in a position to recover NPAs as well.

Your provisions have dropped to ₹66 crore from ₹118 crore. Are these fresh slippages or are these largely from your ₹700-crore watch list?

Some of them are from that category. What has happened is that NPA provisions are much smaller than that during last year’s Q1 — it is ₹93 crore compared with ₹123 crore last year. But the provisions are being made to ensure that we keep PCR at around 75 per cent or so. In case of the slippages, as we go along, we expect most of the larger accounts to have some kind of problem. Some of the loans may not be recovered. In fact, we do not expect the entire provision amount to go bad. Maybe the slippage could be 40-50 per cent of the provision. But then, if the economy improves, the slippage may be much lower.