Expecting good growth in next 2 quarters: Bank of Baroda MD & CEO Jayakumar

There was no difference between pre-merger numbers of BoB and ratios after the merger, P S Jayakumar, MD and CEO Bank of Baroda says

Listing common identity as public sector entities, ground work by CEOs of Vijaya Bank and Dena Bank, reforms, and transformation were factors for a smooth integration, P S Jayakumar, MD and CEO Bank of Baroda, told Hamsini Karthik and Abhijit Lele. He said the new entity will maintain push for sustainable growth. Edited excerpts:

About year ago, you were not in favour of a merger of any bank with Bank of Baroda (BoB). You have gone ahead with it. 

Yes. That was 18 months ago. That was because we as a bank had not transformed ourselves. But over the last 12 months, the Indian banking sector has been a huge transformation, with initiation of reform measures, harmonisation of accounting and provisioning norms. We are in a much better position (for the merger) now. 

How smooth was getting Dena and Vijaya on board?

It has been quite smooth, and I attributed it to three or four reasons. Being a public sector institution, all three of us have a common identity. Second, chief executives of both banks (Shankar Narayan of Vijaya Bank and Karnam Sekar of Dena Bank) worked hard for the amalgamation. 

Third, the finance ministry and the department of financial services also had a big role in terms of advising and counselling us. Finally, regulators and our board of directors also gave their inputs to ensure the process was smooth. 

BoB was the beneficiary of capital infusion of about Rs 5,000 crore by the government in March. How it has worked for you? What is the assessment capital adequacy for a combined entity? 

There was no difference between pre-merger numbers of BoB and ratios after the merger. As for overall capital adequacy, we are at 11.67 per cent. The Tier-I capital ratio is 9.86 per cent of merged entity. So, we are 1 per cent above the regulatory requirement. 

The government has given us Rs 5,000 crore as equity capital this will improve CAR by more than 1 per cent. There are quarterly profits that we have not added in our capital adequacy (Rs 1,400 crore) and Rs 400 crore of Vijaya have not been considered. Of course, Dena Bank’s losses have been factored in. So, this Rs 1,800 crore will be towards augmenting capital adequacy. 

The RBI has given relaxation for exposure to non-banking finance companies (NBFCs), where the risk weight was 100 per cent and now it will be based on external rating. This will give benefit of 0.33 per cent of CAR. All these factors put together will give us a cushion that we are comfortable on the capital side. 

Under the Basel III norms, banks will have to maintain capital adequacy of at least 11.5 per cent. Also, banks may have to keep extra capital as the merger may it systematically important bank (domestic) bank. How will you garner additional capital? 

There are three or four routes through, which bank will be able to raise capital. First we have employee stock (share) purchase scheme. We had to differ this scheme for completion of amalgamation process. So we will roll that that for employees of all three banks. That should give us about Rs 1,200 crore. Second, we can raise Additional tier I capital by issuing bonds. Which should fetch around Rs 1,500 crore. There is plan for sale if financial assets which are not core to us.