Dena Bank plans to enter into the proposed three-way amalgamation with Bank of Baroda and Vijaya Bank on a relatively strong footing by seeking to bring down non-performing assets to ‘high four digits’ from the current ‘five digits’, and posting at least a rupee of net profit by March-end 2019, according to Karnam Sekar, MD and CEO.

The Mumbai-headquartered public sector bank managed to cut its gross NPAs by ₹3,142 crore during the third quarter to ₹12,998 crore as of December-end 2018, and narrow its net loss from ₹417 crore in the September 2018 quarter to ₹178 crore in the December 2018 quarter.

In order to nurse it back to health, the bank was placed under the prompt corrective action (PCA) framework in 2017 by the Reserve Bank of India. It was brought under PCA in view of its high net NPAs and negative return on assets.

“Once the amalgamation was announced, we thought we would use the two quarters available time to make our bank stronger and, to the extent possible, clean up things.

“One key root cause for the ills of Dena Bank is its huge NPAs. That is what we thought we would focus on. The entire bank also has guided for that,” Sekar, who took charge of the bank on September 21, 2018, told BusinessLine .

Three-way merger

The amalgamation of Dena Bank and Vijaya Bank with Bank of Baroda has been set in motion following the decision made on September 17, 2018 by the government’s three-member Alternative Mechanism that these three banks consider the amalgamation. The merger, which will create India’s second-largest public sector bank, will come into effect on April 1.

To whittle down NPAs to ‘high four digits’ by March-end 2019, the bank has launched ‘Mission Dena 9999’. The target, under this mission, is sought to be achieved by resorting to asset sales to asset reconstruction companies; one-time settlement; auctioning properties mortgaged to the bank under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act; and recovery from loan accounts referred to the National Company Law Tribunal.

“Under Mission Dena 9999, we have to reduce NPAs by about ₹6,000 crore in two quarters. By December-end 2018, we brought down NPAs by ₹3,150 crore. So, if the efforts continue at the same level, by March 2019, we should be able to cut the NPA level to ₹9,999 crore. This is an optimistic estimate. We need to see now as to how it works,” said Karnam.

Eyes profit

Besides tackling NPAs, the bank, which posted losses in the last eight quarters, is simultaneously trying to work on profitability.

“We are incurring loss, essentially because of the huge credit cost. Otherwise, we are making operating profit. Hence, we thought we would improve the operating profit. So, we have focussed on recovery in written-off accounts...So, if you show some recovery there, it will directly go to the profit,” explained Sekar. In the first nine months, recovery in written-off accounts was higher at ₹148 crore (₹56 crore in the year-ago period). Underscoring that vigorous recovery efforts and lower yields on bond helped the bank narrow losses in the third quarter, Sekar observed that if the same trend continues, by March 2019, it may be able to show at least a rupee of profit.

He elaborated: “But whether it (recording a profit) makes any difference because the decision (merger and swap ratio) has already been made is a different issue. At least for us – employees and management, it (bringing down NPAs and making efforts to turn profitable) gives lot of satisfaction. It gives us the confidence that, yes, if we embark upon some mission, we can achieve.

“So, we should not go into the merger in the same weak position as we were in September 2018. So, that is the objective. In the December 2018 quarter, the entire mood in the bank has changed. Everybody thinks yes we are strong, we can do things.”

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