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Margins to return to normal 3.2% level by Q3, says Federal Bank CFO Ashutosh Khajuria

Federal Bank reported its weakest quarter in the last three-and-a-half years with net interest income (NII) growth and loan growth slipping to 14-quarter low.
In an interview to CNBC-TV18, Ashutosh Khajuria, the ED and CFO of the bank, discussed the Q2 performance.
The bank is expecting a healthy improvement in net interest margin (NIM) going forward. “As far as NIM is concerned, that had been an aberration and it is specific to this particular quarter where the maximum impact had been felt. Going forward in Q3, you certainly would see a healthy improvement in NIM back to our normal which is between 3.15-3.20 percent,” he stated.
On slippages, Khajuria confirmed that the bank had no exposure to Altico Capital. “One of the already identified stressed assets, we had two accounts of that group and one of those two have slipped. It is about $25 million equivalent, so it comes to around Rs 180 crore,” he added.
“Housing account is standard, but we have provided for it as a standard asset provision. We have made some liberal provisioning on the standard provisions, those accounts which have not slipped but which are on our watch list. There were three major accounts, one has already slipped,” he said.
On DHFL, he said the resolution process is underway. “Inter-creditor agreement (ICA) has been signed among the lenders and some restructuring could be there. But in the meantime, as a prudent measure we have provided as if it would be required for under substandard category,” he added.
Speaking about NII, Khajuria said, “We started asset pricing when for the first time the regulator said that we have to move to external benchmarks. So, we experimented or rather we started with treasury linked-pricing for some corporates, very highly rates corporates, and very highly rated retail housing loan book. So, what has happened is, because of aggressive rate cuts that happened during the year and particularly in the first half of this financial year, we saw Treasury bill itself falling by about 85 basis points. For full year if you compare September to September or October to October, it is about 210 basis points. So, that had been the fall in Treasury bills. As a result, our asset book started getting impacted. The major impact had been in this quarter, but that was fixed by moving our liabilities also to external benchmark. Our savings bank rate now are linked to repo rate and because repo rate is highly correlated to Treasury bill, going forward, interest loss would not be there.”