The bank has so far restructured corporate and retail loans of Rs 1067 crore including Rs 663 crore in the December quarter, much lower than their own estimates, senior executives at the bank said in a post result video call.
“The restructing has been much lower than our expectations. We had expected total loans to be restructured to be anywhere between Rs 3200 crore to Rs 3500 crore but it is now expected to come anywhere between Rs 1300 crore to Rs 1500 crore which is about 1.5% of our book as only MSME accouts of about Rs 300 crore to Rs 400 crore are yet to be restructured,” said Ashutosh Khajuria, executive director, Federal Bank.
As a result the bank said it is confident that the stepped up provisions already done by it will be enough the tide over any uncertainties in the near future.
Federal Bank’s net profit dropped 8% year on year to Rs 404 crore in the quarter ended December 2020 from Rs 441 crore in December 2019 mainly due to higher provisions.
Total provisions increased two and a half times to Rs 439 crore in December 2020 from Rs 163 crore as the bank continued to step up its provisions to deal with any uncertainties linked to the Covid 19 pandemic.
The provisions included Rs 390 crore to cover for any slippages after the Surpeme Court (SC) moratorium is lifted on banks to classify loans as non performing assets (NPAs).
The bank’s gross NPAs dropped to 2.71% from 2.99% a year earlier, however, if not for the SC moratorium NPAs would have been 3.38%, the bank said.
“We have continued to remain conservative and taken into account likely slippages after the SC order is lifted as a result our provision coverage ratio has improved substantially from 45.30% a year ago to 77.10% now,” said Shyam Srinivasan, CEO at Federal Bank.
During the quarter the bank utilised Rs 51 crore for provisions on the loans it restructured according to the special dispensation given by the Reserve Bank of India (RBI) from the Rs 588 crore provisions which were set aside in the quarter ended September against the likely impact of Covid 19.
The bank’s loan book increased just 6% year on year mainly as the corporate book shrunk by a similar margin, though a whopping 67% rise in the loan against gold business helped in both credit growth as well as push up yields.
Federal Bank has pushed gold loans after the recent rise in gold prices and Srinivasan said he expects the business to continue a fast pace growth.’
“Gold loans now make about 11% of our loan book and have increased from about 6% last year, though its not close to the 15% peak we have seem so we are fine with it. Our loan to value ratio is about 73% ane we are comfortable with it,” he said.
Growth in the high yielding gold loans which has a close to 12% margin and business banking businesses along with a fall in the bank’s cost of funds helped the bank improve its net interest margins to 3.22% from 3% a year ago. The bank’s current and savings account deposits rose to 34.48% from 31% a year ago, aiding the growth in margins.
Federal Bank earned a net interest income of Rs.1437 crore for the quarter up 24% as against Rs. 1155 crore in the same quarter last year.