Robust broader capex cycle to accelerate corporate loan book: BoB MD & CEO

After the bank’s third-quarter earnings, SANJIV CHADHA, managing director and chief executive officer, Bank of Baroda (BoB), in conversation with Subrata Panda, delves into BoB’s exposure to Adani Group, its loan and deposit growth trajectory. Edited excerpts:

Where do you see your net interest margins (NIMs) settling at?

There is some impact of the natural lag that exists between the repricing of assets and liabilities. We have also seen some structural changes to the balance sheet. They are primarily from a larger composition of retail assets. Within retail assets, a significantly larger composition of personal loans. These are likely to play out as we move ahead.

With the kind of growth we are seeing in our loan book (20 per cent), the impact of this will play out next year. What we see as NIMs now should be fairly sustainable in the future.

BoB’s deposits have grown faster than the industry’s. What strategy have you adopted? 

We have made investments in terms of making sure our savings banks franchise is strengthened. That has happened largely through technology intermediation. Moreover, we are in a rising interest-rate scenario, and we have to make sure that rate-sensitive customers get a fair deal.

We have an offer for 399 days, which yields 7.8 per cent to senior citizen customers. This means the deposit interest rate has become positive on a real basis after a long time and the relative attractiveness of banks as a channel for deploying surplus has improved.

The corporate book has shown healthy growth this quarter. Will you continue growing this book at the current pace?

In the past two years, we chose not to grow our corporate book because the margins did not support it. We wanted to make sure we do not compromise on the underwriting standards or margins.

At the beginning of the year, we had guided that finally we have come to the stage where it is possible to grow the corporate loan book and have the margins intact.

Now when interest rates and liquidity are normalising, banks have a reasonable pricing power to be able to push corporate loan growth while keeping margins intact.

I think we will see some acceleration in the corporate book, particularly because the broader capital expenditure (capex) cycle is strengthening. It will also benefit from this Budget, where the commitment of the government towards capex is 33 per cent more than last year’s.

Credit growth has seen some moderation. How do you see your advances book expanding going into next year?

This year's credit growth has surprised us. We thought it would be 12-15 per cent but it’s coming out as 20 per cent. We want to grow in tandem with the market or a little quicker. For next year, the correlation between the nominal growth rate and loan growth rate should come back. The Budget says the nominal growth rate will be 10.5 per cent. I think our loan growth could be 14–15 per cent.

Will there be no impact of slow growth or high inflation on your asset quality?

I don’t believe so. The current interest rate was not out of sync with what has been the past interest rates if you look at the earlier five-year horizon. There is no reason to suppose that they should be disruptive at all. Also, balance sheets have got fortified and are stress-proof. All borrowers have seen tough times and have the resilience to absorb this rise in interest rates.

Is there any concern about the Adani exposure you have?

I don’t think so. It’s a relatively modest exposure we have. Also, it is spread over several companies. These companies operate in different segments. They have operating assets and cash flows. Around 30 per cent of the exposure of banks’ where they are in a joint venture with public sector companies. I think we are very well placed. There is nothing that will impact existing operating assets.

Will you look at proactively making provisions for the standard assets of Adani Group?

There is no reason to do so. Our overall book is in robust shape. I believe we are significantly over-provisioned. There will always be a possibility of some part of the book showing stress. I think we are well provided for that. The credit quality will continue to improve. Gross and net non-performing assets will continue to come down and profitability will continue to improve.