Profit trajectory to continue despite ECL regime impact: BoB MD & CEO

With net non-performing asset (net NPA) ratio below 1 per cent and provisions for written off assets around 92 per cent, Sanjiv Chadha, managing director (MD) & chief executive officer (CEO), Bank of Baroda, explains why the bank is in a better position to make the transition to the expected credit loss (ECL) framework. Chadha spoke to Manojit Saha in a video interview for Business Standard’s The Banking Show. Edited excerpts:

Do you think lending and deposit rates have peaked with the Reserve Bank of India (RBI) maintaining the status quo for the second-straight policy review?

I would believe so. This was the anticipation even of the last few months. The trend of banks increasing deposit rates and lending rates now seems to have leveled out. So, we probably are near peak rates as we speak now. Of course, the RBI has kept its stance in such a manner where its options are open but I think from my perspective, rates are pretty much near peak. The inflation trajectory would need careful watching, which the RBI is doing. I believe we should not see any significant spikes from here on.

Do you think the withdrawal of Rs 2,000 notes puts a downward pressure on deposit rates?

If we were to assess the relative importance of things, then it is much more important that inflation seems to have peaked and is now on a downward trajectory. At least, the RBI is temporarily on hold for the last two policies. The deposit rate increase has also stabilised. In this context, the Rs 2,000 note inflow, which is coming, is possibly marginal. This will have a one-off effect but not something that is going to be of enduring importance. The important thing is the inflation trajectory, which has stabilised.

Bank credit grew by 15 per cent in the previous fiscal year. Do you think that kind of growth will be there this fiscal also?

If you were to examine the last few quarters, you would find that the growth rate has started tapering downward. While there is a broad-based recovery which is underway, nevertheless there was an impact of post-Covid bounce last year. That is no longer going to be the case. Our sense is we will see on an average, 13-14 per cent.

RBI had released a discussion paper on the ECL model for provision. What would be the overall impact of this framework on BoB?

We have to look at this in two contexts. One is the credit cost sans the ECL model. Last year, our credit costs were 0.5 per cent and the benign environment of our corporate book and international book continues. So, it is possible that credit costs will go even lower this year. And, to the extent we foresee, the next 2-3 years should be fairly good. This means there is enough room to absorb the ECL amortisation, which may be there.

With BoB’s net NPA ratio less than 1 per cent, does that put the bank in an advantage to adopt the ECL framework?

I think both the things work – one is your stock — that is the current book. As you said net NPA is about 0.89 per cent, gross NPAs have been coming down, written off assets are provided to the extent of 92 per cent. This means the scope for additional provisioning is very limited. Along with that is your current book, where the credit cost is at very low. Both these things in tandem, they are likely to help us absorb any ECL impact that might be there in the future.

In the discussion paper, RBI has said banks can amortise the additional capital requirement over five years. What would be the impact of the ECL framework in the first year for BoB?

We believe that on a stable basis credit cost, which is 0.5 per cent, should be within 1 per cent for the bank, through the cycles. Our assessment is that if we were to add the ECL amortisation, the credit cost, which we see now, will be within this standardised figure.

Your three-and-half year term in BoB is coming to an end this month. Is there any unfinished job that you wanted to complete?

In terms of the unfinished agenda, banking is so dynamic that you would want to do it not next year but tomorrow. I believe, today as we speak, the bank is in a very sound, competitive position because the investments we have made in technology, how we have translated those investments into customer experience through BoB World, what we have been able to do with business correspondent – we have 50,000 of them – which means we have been able to bridge the digital divide. We have been able to translate these advancements into business. Our loans grew 18.5 per cent last year, which is above the market. Deposits grew 3-4 percentage points higher than the market. We have built new businesses like wealth management over the years. I think the bank is in a very good position as we go forward. And, most of all, we are so fortunate that one of our executive directors is taking over from me as the MD of the bank. So, the element of continuity is of paramount importance if you want to build upon the success that the bank has enjoyed.