Going by liquidity measures taken, rate cut possible: BoB MD & CEO

Currently, the deposit market is very tight, both in terms of growth and also on the cost side. So, clearly, the cost of deposit is higher resulting in a lower NII growth, Chand said

Following the Bank of Baroda’s (BoB’s) December quarter earnings, its Managing Director and Chief Executive Officer Debadatta Chand spoke to Subrata Panda and Abhijit Lele about the bank’s performance, its strategy for the rest of financial year 2025 (FY25), and its expectations from the upcoming monetary policy meeting. Edited excerpts:

 

The net interest income (NII) and net interest margin (NIM) growth was modest. How much has the deposit cost played an impact?

 

If you look at the interest expenses, it is growing faster than the increase in the interest income. Currently, the deposit market is very tight, both in terms of growth and also on the cost side. So, clearly, the cost of deposit is higher resulting in a lower NII growth. Our nine months’ margin has been 3.08 per cent and for the full year, we are targeting a NIM of something between 3 to 3.10 i.e., 3.05 +/- 5 basis points (bps), with an upward bias. There is an expectation of a rate cut, and if that happens a lot of the borrowing market and the certificate of deposits (CD) market would react to that. And that typically brings down the cost on the resources side. Hence, on the NIM side, we are quite hopeful that the full year, the margin we can keep it somewhere between 3 to 3.10 per cent.

 

 

What do you make of RBI’s liquidity measures?

 

Two measures have been implemented: a CRR cut and the injection of Rs 1.3-1.5 trillion of liquidity on a durable basis. These steps are positive because they have already cooled down the borrowing market. With expectations of a rate cut, there will be a further reset of liability cost structures. These measures will enhance the system’s liquidity profile, enabling banks to lend more to the market. As a result, we are on track to achieve a GDP growth of nearly 6.6 per cent for the full year.

 

Do you think RBI will cut rates in the upcoming monetary policy meeting?

 

We, as a market, always hope for a rate cut and going by the liquidity measures taken, there is a likely hood of a rate cut. Our house view is that in the calendar year, there will be three cuts, with one cut happening in February itself.

 

Do you think the RBI will announce another round of CRR cuts?

 

The goal is to ensure durable liquidity, which is why the RBI announced both the CRR cut and liquidity infusion measures. With these actions, the impact is expected to be significantly positive across several areas, including NIM, liquidity, and borrowing. This is a highly favourable development for the entire system.

 

What is the ideal Retail Agriculture MSME (RAM): Corporate book you want to achieve and by when?

 

Looking at the December quarter, retail growth has been impressive, reaching nearly 20 per cent. For MSME and Agri, growth has also shown strong improvement, with an increase of almost 200 bps compared to the September quarter. As we continue to grow faster in the RAM segment, the mix will naturally shift more towards RAM. For the full year, we expect a 10 per cent growth in our corporate loan book. With retail growth at 20 per cent Y-o-Y and MSME/Agri growth around 14-15 per cent, we will continue to shift the balance more toward RAM. In the next 2-3 years, we aim to achieve a 65:35 mix between RAM and the corporate book.

 

Your credit deposit (CD) ratio is elevated. Will you calibrate loan growth, given how the deposit market is to keep your CD ratio at a comfortable level?

 

We expect to operate with a domestic CD ratio between 80-82 per cent on the domestic front, and the global CD ratio would be between 82-84 per cent, as the overseas market typically has a higher CD due to its structure. When we project an 11 per cent growth in deposits and a 13 per cent growth in advances, it would result in a CD ratio close to 84 per cent. There are two key factors to consider here: first, our excess SLR is around 6.7 per cent, so we don’t need to allocate additional funds to the SLR. Second, our LCR is at 130 per cent, meaning we don’t need to hold additional liquid assets to meet the LCR requirement. Given these factors, maintaining an 11 per cent deposit growth, 13 per cent advances growth, and an 84 per cent CD ratio is achievable. This is the range we plan to operate within, and that’s what we’ve consistently communicated.