Bank of Baroda may repatriate some capital from overseas business

Public sector lender Bank of Baroda (BoB) is planning to shift a part of its capital in international business to its domestic operations where margins are higher and there is more room for higher volumes.

The surge in liquidity — following additional infusion by central banks to fight the Covid-19 pandemic — has pushed down interest rates across the globe. In developed markets, rates are at a near-zero level. While net interest margin (NIM) in India is at 2.8-2.9 per cent, the corresponding numbers in global business is at 1.2-1.3 per cent.

Sanjiv Chadha, managing director and chief executive, BoB, said broadly speaking the NIM on domestic books is significantly larger than those on international books. “Therefore, when capital is at a premium, the bank has to be very prudent in managing it,” he said.

 “Therefore, we would want to shift our capital from international to domestic book,” he said. The bank, however, did not clarify on how much of the capital will be brought back to India.

The capital adequacy ratio (CAR) of BoB — which has substantial presence in the Middle East, Africa, the UK, Asia Pacific and the US — was at 14.99 per cent at the end of FY21 as against 13.3 per cent in March 2020.

The bank’s international book shrank in 2020-21 when deposits declined 20.9 per cent to Rs 1.08 trillion at the end of March 2021 from Rs 1.37 trillion a year earlier. Its advances on the international side also dipped to Rs 1.1 trillion at the end of FY21 from Rs 1.27 trillion at the end of FY20.

Chadha said some segments of international business were doing well and would give good returns on equity. “African operations are doing very well and subsidiaries in Uganda and Kenya are giving us returns on equity in the high teens (15-20 per cent). But international wholesale business has been impacted more in terms of margins as compared to India,” he said.

Experts said two trends were likely to continue over the next few years: shifting of more international capital to India and increase in the size of domestic book compared to those abroad.