Mumbai: In a phone interview from Goa, Development Credit Bank Ltd (DCB) chairman Nasser Munjee said the lender will run down the retail book in one year. He admitted that the bank’s non-performing assets (NPAs) have been growing, but said there is no problem on the capital front. Edited excerpts:
You are under Reserve Bank of India (RBI) scanner for deteriorating asset quality.
We are not under any special scanner. For the last four years, we have been holding monthly meetings with RBI. We have been under the monthly reporting system for years now. That’s perfectly adequate. RBI knows perfectly well what the problem is. We are very closely monitored.
How do you plan to correct the situation?
Clean-up act? Munjee says DCB has ring-fenced its retail biz, but is servicing existing clients. Santosh Harhare / HT
We are seeing difficulty across the system; it’s not as if they (RBI) are seeing that DCB has gone ahead and done some dumb lending. Since we are a smaller bank, we feel it a little more.
You seem to have major problems with your retail loans.
The problem is in the retail book as individual borrowers have cash flow problems. We have ring-fenced that (retail business). We have stopped giving fresh retail loans. The situation cannot get worse; it will only disappear over time.
As the provisioning requirements go up, the bank will continue to be in the red for many quarters.
We have to provide only for the NPAs, but I think it will not get worse now as we are not giving any fresh retail loans.
How do you react to rating downgrades?
They (the rating agencies) have gone overboard. I don’t agree with some of the issues they have raised in the rating rationale. I will meet them on Friday. They can have their views, but we don’t agree with their assessment.
The bank has been in a restructuring mode for the past two-three years. We started retail loans three years ago, but the portfolio is now under strain because of the current market scenario. The loans given to corporates and small and medium enterprises (SMEs) are doing well.
I don’t buy the rating agency argument that our NPAs can go up further.
Fitch Ratings has said delinquencies in the secured (37% of loans) as well as unsecured (14% of loans) retail portfolio are likely to worsen, because they were sourced through external agents whose incentive to recover dues will likely diminish with the discontinuation of fresh lending in this segment.
This is absolutely wrong.
Crisil has said that DCB’s corporate advance portfolio may also witness some pressure on asset quality.
I’m sure that if the economy continues to decline, it is possible that the corporate portfolio could get affected. We as a bank would need to take corrective action like other banks.
DCB seems to need a clean-up every two years.
You are living through the worst recession in history; it is not some normal thing we are going through. The major banks of the United States have collapsed. Nobody can say that the retail business has not suffered. It shows up more in our case as we are a small bank. It does make us vulnerable, but we can come out of it.
We had cleaned up one side (SME business) and another problem came up. The new chief executive (Gautam Vir) had started the entire retail drive (personal loans and unsecured lending). In hindsight, you could say this has gone wrong for us. But you have to remember the entire consumer finance market is under strain on account of the economic downturn.
We have some problems in the retail book, but our capital adequacy is healthy. We have adequate liquidity; we are lenders in the market.
Will you completely stop retail lendings?
We are not sourcing new retail loans, but we will continue to offer retail products to our existing customers. Customers who have existing banking relation with us and need retail products, we will be happy to provide it to them.
Do you agree that the rating downgrades could affect your capital-raising plans?
We have enough headroom to raise tier II capital. With the rating change, we would not be able to access the debt market. So, we will go to the promoter and ask them for the support. I don’t need the capital today. It’s not that we are pushed to the wall. We are comfortable with a capital adequacy ratio of 14%. We are contracting our balance sheet and hence our capital adequacy ratio is increasing.
One doesn’t go for aggressive growth in these times. We have to grow our current and saving accounts base and have to ensure our branch banking works effectively. We can do some interesting corporate lending in these times also.
Is the Aga Khan Fund for Economic Development (Akfed) willing to pump in fresh capital into the bank?
Akfed holds around 26% stake in the bank and has been always supportive of the bank. I have not asked them for any capital so far.
Isn’t the promoter under RBI pressure to reduce its stake?
In times like these, it would be silly for a regulator to ask a strong promoter to dilute (its stake). In these times, you need strong committed promoters.
Is there a possibility that the promoter could sell its stake?
No chance. We are not for sale.