Mrutyunjay Mahapatra, MD & CEO, Syndicate Bank, says his priority is to repair the balance sheet and not be aggressive on growth. Edited excerpts from an interview:
While Syndicate Bank is not under the prompt corrective action (PCA) of the RBI, its NPAs are high. The bank has also posted losses in the first and second quarters of the current financial year. What are your immediate priorities?
The immediate issues that I would like to address are twofold. I would like to repair the bank as I build it. Repairing in the form of taking out the NPAs and trying recovery and resolution together. Only recovery may not be a solution as cash flow is not there [for some companies].
There, I can collaborate with them and bring a resolution regime which has both the elements — one, scaling down of operation and enhancing the security. Also, giving them a bandwidth of bringing in a foreign investor, selling non-core assets. So, resolution is an integral approach to recovery. Instead of a distress sale, my approach is a blended approach where I do both recovery and resolution together.
What kind of improvement do you see in business growth, which had been tepid till September?
During the first six months of the financial year, before I joined the bank, the adjustments were happening in the risk-weighted assets books. Because, if you start growing, you will require capital. As NPAs were eating away a large amount of capital, growth capital was not there.
So, repairing the balance sheet took precedence. But now we have some growth capital which was freed up by some NPA resolution.
So, we are focusing on capital-light areas like housing loans. I want to go for a little lower margin but will freeze that margin. Globally, the gap of probability of default between a AAA-rated entity [highest investment grade ] and BBB-rated [lowest investment grade] is 3.5%. But in India the gap is 6.5%.
So far, for the full financial year, I will be happy if I grow at 5.5% each in advances and deposits. I am not interested in growing the balance sheet aggressively. Even if my net interest margin comes down from two and a half per cent to 2.25%, I am okay with that as long as credit costs remain below 2%.
What kind of growth do you see in current and savings account deposits (CASA), which are low-cost deposits?
The share of CASA deposits in total domestic deposits were 33.46%. Our aim is to take it to 38% by the end of September 2019.
When do you think the bank will return to profit?
I think there is a touch-and-go chance for the January-March quarter but April-June looks quite favourable.
So, there will be pressure of provisioning for NPAs in the third and fourth quarter of the current financial year?
Provisioning pressure will be there. Corporate NPAs are bottoming out and the last quarter [January-March] will see some big ticket resolution from the first list of RBI that was referred to NCLT. But some ageing provision will happen. Also, there are cases like IL&FS. Some additional provisions from agriculture sector will be there as debt waivers are getting announced.
Where do you see gross and net NPA figures by March ?
We will bring down gross NPA ratio to below 12% [from 12.98%] and net NPA below 6% [from 6.83%].
Will you be raising capital in the current financial year?
By the end of January or beginning of February, we will do an employee share purchase scheme. We will get ₹500 to ₹600 crore. Every ₹500 crore gives me an uptick of 0.3% in capital adequacy ratio. I am also talking to bankers to find out what will be a good option [to raise capital]… whether a tier-I capital issue or tier-II, depending on market conditions.