Government-owned Vijaya Bank expects net profit of Rs 10 billion this financial year. On the back, it says, of healthy growth in advances and a sharp fall in accretion of bad loans coupled with strong recovery from delinquent accounts.
The Bengaluru-headquartered lender reported a 43.3 per cent drop in net profit at Rs 1.44 bn for the quarter ending June, the first one (Q1) of this financial year. This was due to raising the provisioning on bad loan accounts, to ring-fence its balance sheet from future slippage.
During the quarter, the provision coverage ratio (PCR) jumped to 61.18 per cent from 56 per cent in the same period a year before; the bank provided Rs 5.5 bn to improve this. It eyes a PCR of 65 per cent by the end of FY19, an improvement of around 400 basis points (bps) over the June quarter.
Total income rose to Rs 39.3 bn during Q1, from Rs 35.1 bn a year before. Net interest income (NII) jumped 28 per cent to Rs 12 bn.
"Given the strong growth in advances, dip in NPA (non-performing assets) and strong recovery from bad loan accounts, we should end this financial year with around Rs 10 bn of net profit," said R A Sankara Narayanan, managing director and chief executive.
There was marked improvement in gross and net NPA ratios. While the former fell to 6.19 per cent, from 7.3 per cent a year earlier, net NPA dropped to 4.1 per cent, from 5.24 per cent.
"Our net NPA will be less than four per cent in the coming quarters; we don't see any fresh slippages. Also, we see good momentum in (loan) recovery," said the MD. It recovered Rs 4 bn from bad loan accounts in the quarter.
Vijaya Bank has exposure to 10 accounts that have been referred to the National Company Law Tribunal (NCLT) for resolution under the insolvency law. "Resolution for two accounts, including Bhushan Steel, has been completed and we recovered around Rs 1.6 bn from the first resolution," he added.
The bank also improved its net interest margin by 20 bps to 3.12 per cent. "We will maintain it at above three per cent," the MD said.
With a thrust on loans to individuals (retail lending in sector parlance), gross advances grew 31 per cent to Rs 1,223 bn and the bank said it would grow its loan book at around 20 per cent this year.
"Our major focus area is on the retail loan book. Of the incremental advances of Rs 300 bn, half had been lent to the retail segment. Within this, home and mortgage-backed loans were the major focus areas," said Narayanan.
He says they are adequately capitalised to fund loan growth and would not require equity capital from the government. "We have room to raise around Rs 30 bn through tier-I and tier-II bonds. Also, our internal accruals will take care of loan growth.”