Mukesh Kumar Jain, MD and CEO, Oriental Bank of Commerce (OBC), talks about the lender’s growth plans and strategy in an interaction. OBC had come out of RBI’s prompt corrective action (PCA) in January. Edited excerpts:
Have you seen any improvement in growth after the Reserve Bank of India (RBI) removed OBC from prompt corrective action (PCA)?
Yes. Now we are expecting over 10% growth in loans. Till the end of the third quarter, credit growth was 5.3%. We are extending loans only to highly-rated companies which are AAA or AA, apart from the retail and MSME segments.
OBC saw a sharp decline in net non-performing asset (NPA) ratio in the October-December quarter, that fell to 7.15% as on December 31 from 10.07% in the preceding quarter. Do you think the ratio will be less than 6% by March end? What is the one-year road map for NPA reduction?
Yes. Net NPAs will be below 6% by March 31. Gross NPAs, which were 15.82% in March, will also come down. We also have a healthy provision coverage of 75%. Going ahead, I see net NPA ratio falling below 5% by the end of the financial year 2019-20 and gross NPA ratio will be under 10%.
Have you been able to contain slippages?
In the last two years, our quarterly slippages were in the range of ₹3,000 crore. But in FY19, the slippages have been contained to below ₹3,000 crore. In the first quarter, it was ₹2,800 crore, about ₹1,450 crore in the second, ₹1,293 in the third quarter. So, there is a declining trend even if there was a negative surprise like IL&FS. This trend will continue in the fourth quarter also and FY20 will be better. We are expecting slippages of ₹1,000 per quarter in FY20.
What is the exposure you have to cases referred to the National Company Law Tribunal (NCLT)?
In the first RBI list, i.e. the 12 cases that were referred to NCLT, our exposure was ₹3,364 crore where we had 81% provision till December. In the second list, we have an exposure of ₹2,513 crore and a provision coverage of 91%. Up to December, we have filed 164 accounts [for resolution] in the NCLT, where the amount involved is ₹15,000 crore. Provision is more than ₹12,500 crore, which is over 85%.
While we file cases in NCLT, we always try to go in for a one-time settlement with the party. So, we are using NCLT as a pressure tactic. In such cases, we take a relatively lower haircut of about 20%.
What kind of business growth do you see in FY20?
We have made profit in the last two quarters — which has come after seven quarters. Now, we feel we are on the profit trajectory.
Our aim is to have quality growth because the bank has suffered from corporate advances. So, our focus is retail and MSME. We will also extend loans to the mid-corporate segment but only to highly-rated (firms]. So, our growth target is not something big. We are looking at around 10% growth only but the focus is on quality and good margins.
On the deposit side, we are focusing on current and savings account deposits (CASA). We will end up with around 31% CASA [as a proportion of total deposits] this year. We aim to increase it to 35% by March 2020. We are also focusing on digitisation which will also help growth in CASA. Overall deposit growth will be 8%.
What is the share of corporate advances? Are you planning to reduce your dependence on corporate loans?
The share of loans to retail, agriculture and MSME is 52% and corporate advances are 48% of the loan book. Since most of the NPAs came from the corporate sector in the last few years, we are slowly reducing our exposure to the corporate sector. Our target is to reduce corporate exposure by 500 bps every year. Over a period of five years, we want to reduce our corporate exposure to 25% while in the RAM [retail, agriculture and MSMEs] sector we will have 75% exposure.
What is the capital-raising plan for FY20?
We do not have any need for capital for the next 3 years. We recently raised ₹250 crore via employee stock purchase scheme. The main reason is that we are expecting good recovery from large corporate accounts. For example, our NPAs in Bhusan Power and Steel is ₹1,616 crore. When that is resolved, about ₹850 crore will be added to our profit. This is expected to be resolved in Q2 of FY20. Since recovery will be strong, we will not need to raise capital in the next three years. We will be be able to generate capital to fund a growth of 10-12% for the next three years.
