NPA divergence in RBI audit resulted in PCA, says Dinabandhu Mohapatra

Bank of India (BoI) started to clean up its balance sheet long before the Prompt Corrective Action (PCA) was initiated against the bank on December 20. The bank had set up domestic and international committees to identify assets that can be rationalised. Unviable ATMs, branches, real estate and stakeholding in various companies including STCPI will be on the block in the next few quarters as the bank embarks on an internal restructuring plan. Bank of India chairman and managing director Dinabandhu Mohapatra tells Manju AB how the bank is getting its act together.

Why Prompt Corrective Action now?

The Prompt Corrective Action (PCA) was the result of a Reserve Bank of India (RBI) audit undertaken taking into account the non-performing assets (NPAs) as of March 2017. The RBI has taken a call on certain big accounts. But 70% of those accounts red-flagged by the RBI are cases where we have funded the standby letter of credit (SBLC) issued by other banks. Now we will invoke the guarantees and get back the money. And for remaining 30% of the accounts, we are not the lead bank. So we will go by whatever action the lead bank takes on recovering the dues.

BoI had a memorandum of understanding (MoU) with the government. What was that for?

The MoU signed in May this year was an agreement to achieve certain milestones at certain periods in time. It was for strengthening the bank operations. Since then, our NPAs have come down. We have been rebalancing our asset book. Our corporate book has come down from 52% in September 2016 to 48% at the end of September 2017. Our retail book has grown by 16% during this period. In the last six months, we have started strengthening the bank in a very big way.

Bank of India is a big bank with over Rs 9.5 lakh crore balance sheet. We were the first one to have an overseas branch even before State Bank of India (SBI). We started our London branch in 1946. We were the first to set up a branch in Japan. We are the banker to every Indo-Japanese programme between the two countries. We are present in 22 countries which, of course, will see some rationalisation as we want to focus on profit making centres.

You have written off Rs 11,313 crore worth of loans over the last one year. How much more write-offs can we expect before the balance sheet is cleaned up?

These are accounts that are fully provided for. So we are writing them off or selling off to the asset reconstruction companies rather than letting them sit on our books. Compared to the size of our balance sheet, this is a small number. There will be write-offs but not a significant number. We have rather pushed more cases under National Company Law Tribunal (NCLT), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, (Sarfaesi), and action is being taken. We have about 396 wilful defaulters with an exposure of Rs 4,738 crore wherein 316 accounts amounting to Rs 4,591crore. Here, the suits are filed either under Sarfaesi, or taken to NCLT. So the bank is acting on all fronts. Write-offs are only a number. It is 100% provided for. So we are taking them off our books in some cases and in others, selling off to the asset reconstruction companies (ARCs).

What is the status of BoI’s NCLT cases?

Some of the big accounts are in the last stage of resolution and in the next two months, they will be resolved. All processes are gone through. There will be opportunities for us to write back because, on an average, we have done a 65% provisioning. Genuine buyers are showing interest. In the first list, we have an exposure of Rs 8,400 crore and in the second list, we have an exposure of Rs 8,300 crore. Only in the second list, we are the lead banker in one small account which is now disposed of.

What about rationalisation of ATMs and branches?

We have formed two committees both in India and overseas, and the mandate of this four-member committee is to rationalise operations wherever possible, be it ATMs, branches or the business mix. We have been rationalising ATMs for a while now. We have identified that about 400 will be closed by February and another 300 next year. Wherever loss-making branches are present, we are trying to make them profitable. We shut them down only if there is no hope of reviving them.

We are also rebalancing our portfolio so that we have risk-free and capital light assets. We can lend to assets that are investment grade and above. We will continue to look at lending opportunities but only where the risk is low. But corporate demand is rather poor and we do not want to invest in corporate bonds where the demand is for longer-tenure loans of four to five years. We do not want to take any long-term risk.

Which are the riskier segments in the corporate segment?

We have brought down our exposures in the telecom sector, construction, commercial real estate, state electricity boards and gems and jewellery segments. It is not to say that these are risky. Risk can come from any segment until the economy picks up. We have grown our corporate book with a lot of caution and will continue to do so. In telecom and construction, the book has seen the sharpest fall. Lesser consumption of capital is our strategy. We are not taking up assets which will consume more capital. Capital conservation is key to our lending exercise.

What about retail delinquencies that are rising? Should you not be careful?

Even on the retail side, we are not going all-out. Our thrust is on the secured home loans which are growing at 15.65%. Even here, our average ticket size is only about Rs 16 lakh. On personal loans and credit cards, we are very cautious with smaller exposures. Our car loans have grown 31.95% after we targeted in-house customers. Even the mortgage loans are to select businessmen who have cash-flow problems due to the GST.

Will your fundraising plans be impacted due to the PCA?

No. In fact, we need to do it to shore up our capital. Our board has approved a QIP of Rs 3,000 crore. We hope to enter the market this financial year itself. But the other important thing we are doing is selling off non-core assets. We have already floated a request for proposal (RFP) for STPCI,STPCI, a non banking finance company a non-banking finance company. The deal may go through by the end of this financial year with a right pricing that we are negotiating to get. We did not sell earlier for want of a better price.

When do you think BoI can go back to RBI with a request to lift the PCA?

Unlike other banks, we were on a course correction strategy well before the PCA was announced. So it becomes easier for us. There were some stipulations on our bad loans, recoveries and upgradations. Once the 70% of the SBLC loans highlighted by the RBI in its audit come back, we will go back to RBI and put up a case. But it will happen in the natural flow of things as the RBI audits happen every year.