'Slump beyond March is a worry'

Q&A: R S Reddy

Liquidity still remains tight despite the Reserve Bank of India (RBI) reducing the cash reserve ratio by 350 basis points to 5.5 per cent releasing more than Rs 100,000 crore into the system. This is due to factors like pulling out of funds by foreign institutional investors, Andhra Bank chairman and managing director R S Reddy tells Ch Prashanth Reddy in an interview.

Can the banking sector withstand the current financial meltdown?
Up to March 2009, there will be no problem. If the economic downturn continued beyond March, there could be problems in the banking sector.

Is there enough liquidity in the system?
Though RBI has reduced the cash reserve ratio (CRR) by 350 basis points, liquidity still remains tight due to factors like pulling out of funds by foreign institutional investors. As far as our bank is concerned, we have enough funds to meet the credit demand as well as statutory requirements. We are also looking to improve the resource base to meet the increased credit demand.

What is Andhra Bank’s strategy in the current situation?
We want to strengthen the systems and procedures and lend to productive sectors of the economy. We have no exposure to the risky sub-prime assets. Hence, from that angle, we have no losses. The overall strategy in the current scenario is to attain a decent business level and profitability.

What is your outlook for the current year?
At the end of September 2008, we have a decent net interest margin of 3.1 per cent. Despite the slowdown, we are hopeful of maintaining a decent growth rate of our deposits and advances, as well as healthy margins for the rest of the financial year. We are looking forward to achieving a total business of Rs 1 lakh crore by March 2009.

What about your non-performing assets (NPAs)?
Our NPAs are low even today. We have put in a weekly monitoring system to look at anticipated NPA delinquency. We are taking advance action on all accounts that are likely to slip in repayment.

How has your credit growth been so far?
At the end of September 2008, our advances stood at Rs 36,437 crore, with a year-on-year growth rate of 19.5 per cent. We have good number of sanctions on hand and we observe that there is good demand for credit. Hence, during the second half year, we expect robust growth in credit and are confident that the increase in advances will lead to higher interest income.

What happened to your proposal to raise $125 million debt overseas?
We raised external commercial borrowings (ECBs) to the tune of $75 million in the first quarter of the current financial year. At present, our liquidity position is comfortable and we do not have any immediate plans to raise further capital. However, as an when we require funds , we will take a call on raising the ECBs.