Doors not shut for funding airlines; strong players creditworthy: BoB CEO

The share of retail deposits would rise and help keep net interest margins intact, Sanjiv Chadha, managing director and chief executive of Bank of Baroda, says

The interest rate cycle is likely to turn soft by the end of financial year 2023-24 (FY24) and the share of bulk deposits has already peaked. The share of retail deposits would rise and help keep net interest margins intact, Sanjiv Chadha, managing director and chief executive of Bank of Baroda, tells Abhijit Lele. Edited excerpts:

Q. Inflation is softening and the Reserve Bank of India (RBI) has paused repo rate action. How are interest rates on deposits and advances going to pan out in FY24?

A. The assessment is that the system might have reached the end of the policy rate hike cycle and we could also see some cuts at the end of FY24. This seems to be in sync with global trends. The large part of liabilities that the bank raised in the last 12-18 months has a maturity profile of one-and-a-quarter years. There may be downward pressure on yields and the bank will be in position to re-price deposits accordingly.

Q. What does that mean for margins?

A. We remain fairly sanguine about our ability to protect margins. The liabilities that the bank contracted were of short duration when the rates were rising and we should be able to re-price our loans and deposits in tandem. There are a few other factors at play, like the marginal cost of funds based lending rate (MCLR), which is rising.

There are structural changes in the balance sheet with an increase in the  share of retail loans, where the yield is relatively better than corporate loans. There is improvement in pricing of corporate loans too. The bank will be able to sustain reported margins – 3.3 per cent – this year.

Q. Many banks, including BoB, mobilised substantial amounts through bulk deposits to fund credit growth. Are we going to see a repeat of that in FY24?

A. When interest rates were falling two-three years ago, bulk deposits were paid down first. A certain proportion of bulk deposits may be taken for managing interest rate risk also. Going ahead, I do not believe that if the interest rate cycle were to reverse bulk deposits would form a large part of deposit mobilisation. It would turn more to retail deposits as the situation normalises. I believe bulk deposits’ share has peaked for now.

Q. What is the guidance for credit and deposit growth for FY24?

A. We would want to match credit and deposit growth. If you look at the absolute figures, our deposits grew more than loans, which is why the credit-to-deposit ratio remains fairly benign at 75 per cent. So the bank is targeting 13-14 per cent growth on both sides in FY24.

Q. The bank has made accelerated provisions for exposure to Go First. What is your assessment of the quality of this account? What about funding the airline industry?

A. There have been certain exceptional external circumstances. This is something the company [Go First] has talked about. Overall, as far as the airline industry is concerned, it has recovered very smartly over the last few quarters. Prospects seem to be quite conducive. But any situation that a particular company finds itself in is something that is for that company to address. The doors are not closed for funding the airline industry. It all depends on the player and how strong it is. That is how we look at each sector. We believe in almost all sectors the strong players are entirely creditworthy.