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Federal Bank fears more bad loan pain in Q2

Mumbai: South-based lender Federal Bank, which reported a 36 per cent decline in net profit for the June quarter on provisioning impact from a large borrower, said another Rs 100-crore account is facing stress, which will be dealt with during the September quarter.

“We had two accounts which were facing stress. We decided to take full provision on a metal account of Rs 134 crore in Q1 and the second one, from the shipping industry, will be dealt with in Q2,” Bank’s Managing Director and Chief Executive Shyam Srinivasan told PTI.

The bank’s exposure to this company is at around Rs 100 crore and it is evaluating multiple options to deal with the stress, he added.

When asked if investors should expect a jump in provisions in the second quarter, Srinivasan said there are multiple options on the table.

He said a sale to an asset reconstruction company (ARC), which can give the bank to provide for the losses over the next eight quarters, is the last priority.

Srinivasan also said unlike the metals account, the quality of the securities in this account is better.

The bank had guided towards better days on asset quality front after reporting its FY15 numbers and Srinivasan said it still holds the views. All the legacy issues on bad assets have been dealt with, he said, hinting that there are no other negative surprises in store.

In the past few years, the Kochi-based lender has dealt with stress in some doubtful accounts in some sectors like aviation and now there are “no new names popping up”, Srinivasan said.

Over the weekend, the bank said in the June quarter its net profit declined 36 per cent to Rs 141.39 crore from Rs 220.23 crore a year ago on a jump in provisioning at Rs 153.10 crore from the Rs 22.08 crore in the year-ago period.

The rise in provisioning was largely due to setting money aside for a fresh slippage worth Rs 134 crore from a metals account, and also a Rs 49-crore mark-to-market impact on losses due to yield movements on the treasury side, Srinivasan said.

The bank’s investments in the money market instruments have grown in recent months due to the sluggish credit growth and higher deposit accretion, he said.

Going ahead, the bank will strive to push up the credit deposit ratio from 70 per cent, Srinivasan said, adding, the bank will continue accepting deposits from its clients.

In the June quarter, the overall deposit growth stood at 16.70 per cent as against the under 10 per cent growth in advances.

The retail deposits now constitute for over 96 per cent of the base, he said.

The net interest margin contracted to 3.12 per cent as against 3.31 per cent in the year ago period.