Q&A: Albert Tauro, Chairman and MD, Vijaya Bank

'I don't see interest rates moderating in next two quarters'

As the wholesale price index-based inflation numbers remain high, banks are expected to witness a moderation in their margins in 2011. However, growth and profitability will remain robust, according to Vijaya Bank Chairman and Managing Director Albert Tauro. In an interview with Debasis Mohapatra, he shared his perspectives about the banking industry, with a focus on his bank. Edited excerpts:

What is your outlook for the banking industry in 2011?
The industry did well in the third quarter of this financial year. From profitability and growth perspective, the industry will do well in 2011. Non-performing assets (NPAs) may be a challenge in this calendar year — may not be for my bank, but for many other banks — as the government has asked all banks to shift to a system tracking NPAs. One more challenge can be a bit of liquidity issue. Probably, less government spending is one of the factors for this and we expect the situation to improve with more government spending.

What is your expectation on the interest rate regime? Is that also a challenge?
Of course, it is another challenge. On the back of higher inflation numbers, the central bank may have fewer options than to increase the interest rates. As there are concerns from both supply and demand sides fueling inflation, I don’t see interest rates moderating in the next two quarters. All these challenges are same for all banks though private sector banks have a better leverage to control their operating costs, compared to public sector lenders.

Along with less-than-expected credit growth, deposit rates have seen an upward trend recently. Will that put pressure on net interest margins (NIMs)?
NIMs have increased for most banks in the last seven to eight quarters, reaching close to three per cent. But going forward, this kind of growth may not happen. This may not slide dramatically in near future, but will remain subdued, as there is cost pressure on the liabilities side, with tepid increase in yield on the assets front.

Where do you see Vijaya Bank in 2011?
I expect an overall growth rate of 18-20 per cent in business (assets/deposits), which is healthy and good. NIM should be more than three per cent in this calendar year. On the NPA front, the gross NPA should be contained within two per cent. As far as the NPA accretion is concerned, that should be not more than 1-1.5 per cent from the present level of three per cent.

During the third quarter, Vijaya Bank did not witness encouraging credit and deposit growth. What’s your outlook on this front?
We are hopeful of reaching credit growth of 18-20 per cent by the end of this financial year. As we lost a Rs 7,000-crore disbursement opportunity due to higher base rate, our credit growth was slow in the third quarter. Though we encourage aggressive growth, we will follow a cautious policy in the credit disbursement front.

How was your current account, savings account (CASA) portfolio in the third quarter?
It has seen sound growth in the recent time with an overall 26 per cent portfolio of total deposits. We have also seen youngsters opening accounts in our bank as part of our CASA expansion initiatives.