Expect slippages, credit cost to come down further: Bank of Baroda MD & CEO

Sanjiv Chadha, in an interview with Manojit Saha, says it was a conscious decision not to chase corporate loans and focused on segments offering higher margins

Sanjiv Chadha, managing director and chief executive officer of Bank of Baroda, in an interview with Manojit Saha says it was a conscious decision not to chase corporate loans and focused on segments offering higher margins. Edited excerpts:

Some of the public sector banks saw healthy loan growth in the fourth quarter. What has been the experience for Bank of Baroda?

We had a difficult first quarter last financial year because of Covid. But each of the next three quarters, we have actually grown by 5 per cent that is how we ended up with an overall growth of 9 per cent. The segment we thought we could get better margins has grown much faster. There was a challenge in corporate loans last year because of pricing due to liquidity. So that’s something we decided to grow at a lower rate. On the other hand, organic retail has grown by 18 per cent. And some segments like car loans 20 per cent, unsecured personal loans 100 per cent. The stance has been to make sure that we focus on margins and wherever we believe we can grow with good margins, those are the areas we would like to focus on.

So, are you saying the focus is on profitability rather than volume growth?

Both. Volume growth is good, you want to grow as per industry, but again make sure that the focus is tightly on profit. When liquidity is abundant, it's very easy to lose your margins.

The bank had to incur mark-to-market losses in the treasury portfolio in the fourth quarter. With bond yields expected to harden further as the RBI is seen to hike rates aggressively to tame inflation, how do you see treasury performance?

This year, as we go forward, we are well reasonably positioned. Because our AFS (available for sale) book has a duration of under two years and within that 40 per cent is floating rate bond. So, we are well protected.

Asset quality for the bank has improved in Q4 but provisions for bad loans increased. What is the reason?

One is that we had few large loans where we had provided to some extent, including a large retail business, which had become a non-performing asset (NPA) and we have provided 100 per cent for that. Apart from that, in certain cases we have made provision which is over and above what the RBI required. Because we thought we had good profit, it makes sense to provide a little bit more so that if circumstances become challenging, our balance sheet becomes stronger. The credit cost which is at 1.95 per cent (FY22) would have been 1.7 per cent if we had not made that extra provision.

So that makes your provision coverage ratio healthy…

Our PCR is 75%, and including technical write-off accounts, it is 90%.

The bank has reported 3.14 per cent net interest margin from domestic operations for Q4? Do you think those levels can be protected?

I think so. We have tried to keep a discipline both on deposit and loan side. On the deposit side, we tried to ensure that most of the deposits come from current and savings account deposits (CASA). Our CASA (as a percentage of total deposits) has moved from 37 per cent to 44 per cent. When interest rates rise, a higher CASA ratio helps a lot. Because while term deposit rates tend to rise, CASA will be priced at similar levels. On the asset side also, we tried to make sure that if margins were not available in certain segments of corporate lending, then we would rather not do that.  If we can keep that discipline, we can protect margins and if possible, improve them.

The bank has seen fresh slippages of Rs 4,514 crore in Q4, and for the year the slippage ratio was 1.6 per cent? How do you see the slippage ratio trending going ahead?

We have been guiding that slippage will come down. They were 2.7 per cent in FY21 and we have guided slippages would fall below 2 per cent and they could trend below 1.5 per cent in a good year. It has been a fairly good year (FY22). The overall slippages ratio was 1.6 per cent. We expect that the trend could continue because the corporate credit cycle, in terms of credit quality, is still improving despite the impact of Covid. The downside risk of slippages from corporate loans is much less than earlier. We expect both slippages and credit cost to come down further.

How much is the restructured book?

The restructured book is about Rs  19,000 crore now, which is doing reasonably well as of now. As I said we have made some extra provisions. Most of the challenges from the restructured would come from the MSME loans. As far as corporate accounts of the restructured book are concerned, we are fairly confident.

What is the loan growth you are expecting in the current financial year? Do you see revival in corporate loan demand?

We expect double-digit loan growth, 10-12 per cent in the current financial year. So far corporate loans are concerned, this year will certainly be better than last year. In terms of capacity utilisation, it is still 70 per cent. So, a board-based investment cycle might be a few quarters away.

Bank of Baroda has recently increased the lending rates? Is there any plan to increase deposit rates?

I think there will be an increase, it may take a little bit of time. We still have enough liquidity to fund loan growth. Over the course of the year, deposit rates will start rising again.