Highlights:

When the bank started the financial year 19-20, the bank shared expectations of credit growth at 18-20%, slippage ratio at 1.75%-2%, ROA at 1.50%-1.60%, NIM to come down, Cost-to-income ratio at 42% to 44% for FY2020.

For the first 3 quarters the performance was close to what the bank had anticipated in the year beginning.

The banking system credit growth started slowing down to 12% in Q1FY2020, 9% in Q2FY2020 and 7% in Q3FY2020. The bank used to record 3-5% credit growth over and above that of the industry.

Earlier the bank had indicated that the bank was not pushing for growth and when trade off is between credit growth and future asset quality, vote is for quality.

When the bank were discussing Q3 results, COVID pandemic was somewhere in distant countries and were not in the matter of discussion then. None expected at that time that the pandemic was going to hit country this way.

The bank ended FY2020 with about 5% annual credit growth and 2% over the above the December quarter position. Had the COVID not struck, the bank would have shown a few percentage point more growth from proposal under process or proposals sanctioned but not disbursed.

The bank had expected Rs 800+ crore slippage for FY2020 with a slippage rate of 2% to closing advances for the whole year. Up to 31 Dec 2019 the bank had about Rs 630 crore slippage to NPA. But for COVID the bank would have ended almost around or slightly above that number.

The bank witnessed slippages of Rs 481 crore for Q4FY20 and Rs 1110 crore for FY2020 which is 3.21% of closing advances as the recovery / collection cycle got broken because of lock down.

For Q4 the amount recovered is Rs 68 crore consisting of Rs 46 crore from live accounts and Rs 22 crore from technically written off accounts, as many SARFAESI auctions had to be cancelled and many OTS settlements got postponed because of lock down.

The bank has given moratorium to all borrowers. Current over dues for 29 Feb stands at Rs 645 crore exposure which works out to 1.86% of the portfolio as detailed below.

Despite moratorium given to all, borrowers who have paid for two or more months comprised 48% of the total loan book.

The bank have decided to keep the COVID provision over and above 1% of ROA for FY2020. So, the bank has made a COVID provision of Rs 125 crore in total which includes Rs 102 crore as an adhoc provision for accounts other than the specific accounts and also for those accounts considered as forbearance.

The bank has spoken to almost each and every borrower multiple times to understand the grass root level realities. The confidence level at the grass root is very encouraging. Only a very small portion of customers said they can't sustain and they will exit business.

The activity in the economy is picking up. The value and volume of the transaction are increasing towards the pre covid level.

The bank discussed multiple times with customers, checked who needs moratorium, who needs Govt guaranteed COVID loan, who needs re-scheduling of loan, who are viable or who are all not?

The banks experience from 2000 – 2003 slow down and also 2008 or 2014 teaches that proper understanding of the cash flows and proper alignment with repayment terms will save most of the accounts.

The bank spoke about 1.86% of exposure who has not yet cleared their 29 Feb dues will be first set of accounts which may like to be slipped within next 2 to 3 quarters.

Then the bank conducted stress test with other accounts who did not have any existing stress during pre COVID days but their industry or business could face long period of disturbance like Hotels, Restaurants, Commercial Real Estates and Lease Rentals. The bank has around 10% exposure to these sectors.

The bank expects that the stressed accounts in the sectors mentioned above may likely get affected to the tune of around 2% of total loan book. This could still be reduced if restructuring and Government guaranteed schemes are properly structured.

Presently, the textile sector is working at 30% capacity with available local labours. It is expected to improve in the month of November / December once the migrant labourers are returned. Iron & Steel sector is already facing slow down and hence didn't expect further deterioration on account of COVID pandemic.

The slippage ratio may be in range of 3% to 3.50% for FY2021 when compared to 3.21% for FY2020 which would be well within capacity to manage.

The bank anticipate that during FY20-21, a sum of Rs 250 – Rs 300 crore may be restructured based on the viability of the account and in tune with the RBI guidelines issued from time to time.

Recovery of NPA will get delayed as legal options like DRT and all will work with delays.

Some 10-15% reduction in properties prices cannot be over looked. Hence income from write off recovery will be affected.

There are now instructions from authorities not to charge customers on ATM usage, processing charges, Penal Charges and all which are also going to affect other income stream.

The rate of interest for govt guaranteed COVID scheme is capped at 9.25% which will affect yield on advances by a few basis points.

Profits made on treasury is slightly appears to be favorable.

Overall, there could be reduction in both operating profit and net profit for FY2021.

The bank have 16.76% of Capital Adequacy Ratio and less of pre existing issues, the bank is confident that the bank will be able to come out of the pandemic much healthier.

Though the bank feel with adequate capital buffer for potential shocks to absorb because of COVID pandemic the bank is not averse to the idea of capital raising

On Deposits front the bank have strong Retail Franchise, No Certificate of Deposit, no reliance on Corporate bulk deposits (Rs 2 crore & above) which forms only less than 10% of the total deposits.

Top 20 deposits constitutes around 9% of the total deposits

The RBI's discussion paper on Governance in Commercial Banks in India specifies a maximum tenor of 10 years as CEO/WTD for a person classified as promoter / major shareholder and 15 consecutive years for a non-promoter / major shareholder. The 15 year tenure of current MD of the bank will be completed on 30 April 2026.

Based on the discussions with customers and developments post opening, the bank is confident that the bank will be able to come out of this Covid issues without much issues and be ready for growth subsequent to normalcy.

There will be some disturbances in the other income streams like income from technically written off NPA a/cs, ATM fee income, loan processing fee, to some extent treasury income etc in FY2021.

The focus during the current financial year 20-21 will be to hand hold borrowers and ensure slippage is at minimum by providing proper support through Government guaranteed ECGLS loans, Covid Crisis Credit scheme and Restructuring.

The focus will be to strengthen the balance sheet rather than expanding P & L during the current FY20-21. Next four to six quarters are going to be extremely crucial for the banking systems in ensuring or otherwise business units are safe guarded from the damage caused by COVID-19 with adequate capital and grip on the portfolio.

For Q4FY2020, the total provisions have increased from Rs 163 crore to Rs 430 crore on account of increase in NPA as a result of Covid 19. The Bank had provided an adhoc provision of Rs 125 crore for Covid which is well above the requirement of RBI. The total provisions for FY20 increased by 55% from Rs 557 crore to Rs 865 crore.

There was a net loss for the Q4FY20 to the tune of Rs 95.30 crore. If the covid provision is taken into account, the bank would have ended with a profit of be Rs 30 crore.

The bank have started reducing the rate of interest and effect will be visible in the next 2-3 quarters.

The bank expect to see 40-50% of average moratorium.

The bank has sanctioned Rs 850 core of loans under MSME Credit Guarantee scheme. The bank is lending at 9.25% and eligibility comes to Rs 1200-1300 crore.

The bank is not active in retail loan. Maximum activity is in MSME. If there is a 15 bps reduction in repo rate, there could be a potential 5-10 bps reduction in overall NIM.

FY21 is going to be the year to save business, and the bank will concentrate on managing the portfolio