Federal Bank expects bad loans additions to be lower in FY17

Unlike other large lenders that have been seeing pressure on asset quality and expect it to remain elevated, private-sector lender Federal Bank believes the additions to bad loans are likely to come down in FY17. Consequently, even the provisions are expected to remain lower in this financial year.

“We do not have exposure to the companies that the other banks have included in their watch list. All the known issues have been addressed and we’ve made incremental provisioning as well. Therefore, we are optimistic about FY17,” said Shyam Srinivasan, managing director and chief executive officer, Federal Bank.

The bank decided not to undertake any strategic debt restructuring or refinancing under the ‘5/25 scheme’. Going ahead, the likely slippages from such accounts are also ruled out, the management added. To clean up the balance sheet, if an account has been marked as a non-performing asset (NPA), then the other related accounts that might suffer because of the main account would also be treated as NPA, said Srinivasan.

The bank’s gross NPA as a percentage to gross advances improved to 2.84 per cent at the end of the March 2016 quarter, compared to 3.15 per cent in the year-ago period.

Apart from pressure on asset quality, the bank also saw its gold loan book shrink to Rs 5,000 crore from the Rs 7,000-crore mark in September 2014. Due to volatility in gold prices, several banks and non-banking financial companies (NBFCs) have seen a sluggish growth in this segment.

The bank plans to improve its market share both in the retail and the corporate segment, going ahead. On Saturday, the lender reported a 96 per cent decline in net profit to Rs 10.26 crore for the March 2016 quarter owing to higher provisioning. The provisions had increased to Rs 388.6 crore from Rs 39.8 crore a year ago.

In a presentation to investors, the bank explained the increase in provision was on account of earlier NPA and failed restructured accounts, among other reasons.