Almost all major banks have witnessed a spurt in bad assets and provisioning as a result of the AQR.
Mumbai: Bank of Baroda on Saturday reported the highest-ever quarterly loss in the nation's banking history at Rs 3,342 crore for the October-December period after recognising and providing for the entire quantum of stressed assets identified through a special review undertaken by RBI.
The country's second-largest lender declared that there will be no more surprises in store for the bank, and that a process of reorganisation is underway.
Despite profits being badgered by an over two-fold jump in non-performing assets at over Rs 38,000 crore, the state-run bank asserted it will not seek any capital infusion from the government but would rather work on generating the money internally, including sale of non-core assets.
Its newly inducted Managing Director and Chief Executive P S Jayakumar said through the clean-up and reorganisation exercise, the bank is confident of posting "reasonable level" of profit next fiscal year.
The gross NPA ratio zoomed to 9.68 percent on fresh slippages of Rs 15,603 crore in the third quarter under review as against Rs 3,042 crore in the year-ago period. This resulted in a nearly five-fold jump in overall provisions and contingencies at Rs 6,164.55 crore.
Executive Director B B Joshi said half of the slippages and 30 percent of provisions can be attributed to the RBI's asset quality review (AQR), wherein it has asked the Vadodara-headquartered lender to identify 30 accounts as NPAs.
He added that despite the regulatory window to recognise the heightened stress in two quarters, it has done so in a single three-month period and there will not be "significant" reverses from next quarter.
"We have put the uncertainty behind us. If something has to be done, it might as well be done now. As far as we can see, we have taken all the required provisions, from here onwards, we expect a fair bit of stability in the outcome of the portfolio," Jayakumar told reporters.
Jayakumar, who joined the bank four months ago as part of a new Government initiative to professionalise management of state-run lenders, recounted an instance from his days at American lender Citigroup where it took a USD 3 billion hit on account of certain issues in 1986.
Much of the fresh stress came in from the steel and power sectors, which impacted other banks' earnings as well. Almost all major banks have witnessed a spurt in bad assets and provisioning as a result of the AQR.
Those in the red include IDBI Bank, which posted a massive loss of Rs 2,184 crore, Indian Overseas Bank and Dena Bank. Largest lender SBI also reported massive plunge in bottomline.
Jayakumar said even though the government has asked it for an estimate of capital requirements, the lender will not be requiring any help from its owner, and will focus on raising resources internally.
The bank plans to sell certain non-core assets, re-balance its bond investments and optimise the risk-weighted assets in such a way that more capital gets cleared, he said.
At the end of next fiscal, even after accounting for a 15-20 percent credit growth it is planning for, the bank is confident of raising its capital adequacy to over the current level of 12.18 percent under Basel-III rules, Jayakumar said.
He said the bank is well capitalised and has adequate liquidity to lend to the growth needs of clients, but added that as part of an reorganisation effort, it will focus on "customer franchisees", indicating it will stay away from participating in loan syndications and focus more on retail.
"While the losses are high this quarter, we are putting behind the risk to move forward," he said, stating that factors like having a much spread out book is of help.
He, however, said the bank is willing to support even the troubled assets if it sees a potential and added it has committed excess fresh funds to at least two accounts which were not getting loans from other lenders.
Without spelling out the prevalent practices in the past, Jayakumar declared all the stress which was identified has been recognised as NPAs and the bank has not resorted to any "ever-greening" in the quarter under review.
As a result of the AQR, the percentage of assets from the restructured book slipping into NPAs has gone up to 34 percent and it recast Rs 250 crore of assets in the reporting quarter.
The bank is in the process of rescheduling nine accounts with an underlying exposure of Rs 5,427 crore under the 5/25 scheme, and may involve in management takeover of 14 companies involving an exposure of Rs 2,400 crore as part of the strategic debt restructuring (SDR), Jayakumar said.
NPAs from international operations, which contribute over 30 percent to the balance sheet, stood at 4.90 percent, but the management was quick to point out that a bulk of them are coming from India-headquartered corporates and excluding those, the number would be 1.68 percent.
The core net interest income (down to Rs 2,705 crore from Rs 3,286 crore) and net interest margin (1.72 percent from 2.20 percent) suffered in Q3 because of a spurt in asset quality.
The AQR resulted in a margin impact of 0.66 percent on the domestic book and 0.44 percent in international.
Jayakumar, however, declined to give any guidance on the future trajectory of the critical numbers, saying things are still evolving and he will be in a position to do so after next quarter.
In the past, there have been cases of reporting excess credit growth, Jayakumar said, adding the bank will now report by the average daily number rather than the terminal figure at the end of a quarter.
He said there can be write-backs from the provisions done now in the next 15 months as the bank will continue to work with the stressed accounts. "We see a greater determination among customers to get back to normal."
The bank has found that there is an excessive focus on manufacturing entities within the MSME sector and would like to allocate more funds to the services sector, he said, adding it is also desirous of lending more to auto segment.
As many as 38 top managers of the bank are retiring over the next year and special efforts are being undertaken to make the transition smoother, said Jayakumar.
"The strengths are huge, the opportunities now evolving are better. So, the future looks good. The challenge for the management is to seize the future with detailed execution and the devil is in the detail of execution," Jayakumar said.