The third and fourth quarters of FY21 will be much better than the first two as positive signals are emerging on the gradual recovery of the economy from the Covid-19 shock, according to Pallav Mohapatra, Managing Director and Chief Executive Officer, Central Bank of India. The public sector bank reported 7 per cent year-on-year (yoy) growth in loans in the first quarter of FY21 mainly on the back of double-digit growth in retail (about 12 per cent growth) and corporate (about 11 per cent) advances. In an interaction with BusinessLine , Mohapatra said awareness among customers about the debt build-up that will happen if they avail of regulatory dispensation (to mitigate the burden of debt servicing due to the adverse impact of the pandemic) resulted in more than 70 per cent of the customers not availing of it. Excerpts:

How has loan growth been in Q2? How do you see the second half of FY21?

The July-September quarter (Q2) of 2021 will be almost flat (in terms of loan growth). But economic activity has started picking up. I am quite hopeful that the third (October-December) and fourth (January-March) quarters of FY21 will be much better. In the backdrop of the pandemic, there is a psyche among people as to what will happen…But now wherever I go I find that almost all the shops are open. This is a very positive signal.

If you look at the entire economic activity, demand was not picking up because consumption was very suppressed. And there was a psyche “whether there was anything left for me in the future”. So, everyone was trying not to spend.

Now that consumption has started demand will pick up. Supply will pick up.

Can you throw some light on the effect of Covid-19 related regulatory dispensation in your bank?

In our bank, we had given the facility of opt out. Moratorium and deferment of interest was available to everyone unless the customer himself wanted to pay it. The average availment of moratorium and deferment of interest is between 25 and 30 per cent. That means the majority 70-75 per cent did not avail of this. Now, people are aware how dangerous build-up of debt is.

Since the moratorium is back-ended, the impact on the banks’ books will not be (felt) now. If the residual period of a loan is 3 years. Now, (following the moratorium) it will be 3 years and 6 months. But on account of the extended period, the interest cost for the borrower will go up.

I think people were sensible enough to understand that. More than 70 per cent of our customers did not avail of the moratorium.

In the case of corporates, sectors (such as aviation, commercial real estate, retail franchises, hotels, etc) which were impacted by the pandemic, whereby their cash flows were really squeezed, perforce they had to avail of the deferment of interest and moratorium.

Will slippages go up?

My assessment is that slippages (fresh bad loans/standard advances at the beginning of a period) should not cross 3 per cent in FY21. Most of the large value stressed accounts have either slipped or have been resolved or are in the process of resolution. Now very few large accounts remain, which have not slipped. So, it (slippages) will be basically a large number of accounts with small ticket sizes (that could slip).

But in cases where the cash flow was not sufficient to service existing debt, the promoters got moratorium. So, the immediate liability on them to pay was not there.

The only factor which will have some impact will be the deferment of interest as the 6 months (March 1 to August 31, ) interest will be converted into a term loan, which has to be paid in six months (by March-end 2021). So, there may be some problem. But one-time restructuring can be done.

What are your credit and deposit growth projections?

We have made a growth projection of 8-9 per cent each for deposits and advances for FY21, taking into account all the developments since March.

How is the bad loans recovery scenario panning out?

We were expecting good recovery in March. There were 5-6 big accounts which were lined up (for resolution), where there was global investor interest. But these investors got into a freeze mode during the lockdown period, which started globally before it started in India. Now, gradually some interest is being evinced.

If you look at the capital market indices, they are going up at a rate which I don’t think has a real equation with the ground level. So, if that liquidity, instead of going into the capital market, goes into the real economy — is invested in assets in the manufacturing, commercial real estate, etc — it will give a boost to the economy.

We are a bit optimistic that recovery will be better than last year. This year roughly we may recover ₹8,000 -9,000 crore, with 40 per cent coming from chunky assets and 60 per cent from all other types of assets.