Bank of Baroda (BoB) is one of the few public sector banks which showed profit growth in the third quarter, although high provisioning tempered the pace of growth. Going ahead, the bank expects to sustain the performance of the previous quarters. In an interview with Manojit Saha, the bank’s Chairman and Managing Director M D Mallya discusses the bank’s future plans and strategies. Excerpts:
How challenging will be the fourth quarter in terms of profitability? Is this the most challenging quarter of your tenure at BoB?
I don’t see it as the most challenging quarter. Each quarter has different challenges. To ensure a sustainable growth in credit delivery is one of the big challenges in this quarter.
What is the bank’s experience so far in the current quarter as far as credit growth is concerned?
Sustaining credit growth was a challenge in the previous quarters of the current financial year too. In the past three quarters, credit growth was muted. Compared to the first three quarters, we have been able to improve credit delivery in the current quarter and hope that credit recovery continues. For 2009-10, I would expect credit growth for our bank at 20-21 per cent. It will be slightly better than the banking industry’s performance.
The reason for my saying this is that we have substantial loans in the pipeline, which could get disbursed in the fourth quarter. In addition, credit growth in retail, especially in housing and vehicle loans, in the farm sector and in the small and medium enterprise segment is on expected lines at 23-25 per cent in each of these segments.
What are the other challenges?
To ensure that the commendable growth across various parameters in the last many quarters is sustained. For example, we have done exceedingly well in current and savings account deposit mobilisation and fee-based income. We have been able to protect our credit quality. We would like to maintain and sustain our qualitative performance in these areas, as we move along.
Do you foresee mark-to-market (MTM) losses in treasury in this quarter?
At the moment, we are seeing a slight hardening of bond yields. It will be difficult for me to say what the bond yields will be on March 31. Having said that, since our modified duration is in the range of two years, I would not expect substantial provisioning requirement for MTM losses as far as our portfolio is concerned.
Where do you see bond yields by March-end?
Difficult to tell now, it has moved in the range of 7.8-7.85 per cent. May be the 10-year gilt will be 7.8 to 8 per cent by March-end.
Where do you see the bank’s margins in the current quarter?
Our domestic net interest margin (NIM) in the third quarter was 3.37 per cent, and we should be able to protect it in the fourth quarter as well. For the full year, we see NIM at 2.7-2.75 per cent. Repricing of high-cost deposits will give benefit in the fourth quarter too, even after retail deposits of 8.5 per cent get re-priced at 6.5 per cent. But, there has been no increase in the interest rate in the sub-BPLR segment.
The bank has recently postponed its medium-term note plan? Do you think spreads have eased to enable the bank to tap overseas markets in immediate future?
As and when we think the market has an appetite, we will take a call. We are not in a hurry. We feel it (spreads) could further come down.
The bank has posted consistent profit growth over the last few quarters, but in the third quarter, the rate of growth came down. Do you think profit growth is flattening out?
Our results have been consistent and we are hopeful of a consistent performance. If you take the third quarter, the net profit was impacted substantially due to provisions, which we did on a proactive basis. That is why the entire agricultural debt relief amount of Rs 212 crore was fully provided for.
Why do you provide for farm loans, as you could have waited till the fourth quarter?
Why defer the inevitable? We follow a very prudent accounting principle.
All Indian banks have sought capital infusion from the government. If the funds do not come as per your expectation, will it hamper growth?
Our capital adequacy is 14.6 per cent, with 8.7 per cent Tier-I capital. We still have headroom to raise Rs 10,000 to Rs 12,000 crore. This should meet my capital requirement for 25 per cent growth in credit for the next couple of years. Therefore, capital is not a constraint for growth.
How much capital do you want to raise in the next six months?
May be about Rs 500 crore.