Our recoveries should improve going forward: P Jaykumar of Bank of Baroda

In a Q&A, the bank's MD and chief executive is hopeful that the lender will see some rebalancing in FY19

Bank of Baroda has had a setback due to higher slippages in FY18, following RBI's revision of rules for restructured assets. Taking the move in his stride, the bank's managing director and chief executive P S Jayakumar tells Abhijit Lele that lender is better placed for loan growth in FY19 with deep restructuring, sustainable practices and a digital banking platform.

Your bank is facing headwinds in FY18. How do you see things going from here?

Disappointments being what they are, fundamental performance has been extremely strong and what we have put together is a set of sustainable practices that will help us grow consistently. This overrides everything. We have implemented a number of fundamental changes and to run the business. The benefits are clearly visible in terms of quality of growth.

There could be quarter-to-quarter consistency issues due to the way markets function and cyclical nature of certain industries. But fundamentally we should have a good growth, both with respect to assets and liabilities.

The asset aspect looks far more certain and we would be disappointed if growth is less than 15 per cent. Rebalancing and growing the retail portfolio does not mean we are not growing the corporate portfolio. The corporate loan book continues to grow. Prospects of refinancing some National Company Law Tribunal (NCLT) cases would provide business opportunities.

What are the things that have disappointed you? Or, to put it another way, which are the areas in which you would have liked to see improvements?  

We need to be able to maintain consistency in performance quarter-over-quarter. We do see ups and down. There are some quarters when we do remarkably better than others do. And then there are others where we seem to converge to median or average. That brings some discomfort as to how complete that performance is going to be. That's the area we need to work on.

We missed growth in the first quarter (Q1FY18). We did not miss growth, but did not do very well in the second quarter either. The bulk of the things happened in the third and fourth quarter, by the time our machinery started working. This time around, we want to ensure that it works from the first quarter (Q1FY19), so that the divergence between growth on end-of-period basis and growth on average basis narrows down. Ideally, average should be better than the end-of-period number.

What is your take on work done on recoveries from stressed accounts?

The reason we have had high provisions is because the ability to recover has not been as efficient as desired. A part of it is entirely out of our control in the way NCLT processes work and the fact that we have a minimal share in these large accounts (referred for insolvency to NCLT).

As a good practice we do not interfere with the role of the lead lender. We just follow them and do not want to be striking out differently. We support the process in a collaborative fashion.

So the slippages have happened and to some extent they were accentuated by the changes in the accounting policy initiated by Reserve Bank of India. But the recoveries have not come up to the same level. So as we go into the next year (2018-19), we hope rebalancing will happen. It may or may not happen in the first quarter, though we do have settlement in the Bhushan Steel case. But, I do think in the second, third and fourth quarters there will be acceleration. So one hopes things would get better.

The banking system is firmly entrenched in a hardening interest rate cycle and demand for funds is growing up. So would we see rise in lending rates as banks begin to enjoy pricing power?

The funny thing is when the interest rate goes up, we are able to price the customer much more fairly than when the interest rate cycle comes down. I think we will have better pricing power. This is true not just for us, but  for other lenders also. The approach is to ensure that the margins are protected.

On the international business front, the bank went through catharsis due to shocks from an alleged political nexus in lending from operations in South Africa. It decided to exit that country. Are you looking to exit from other places as well?

It (South Africa) was catharsis in media only. When the matter acquired a political connotation, the noise levels tend to get elevated. No collusion has been established as of now.

The compliance cost for running banking operations in many countries has risen substantially. We are going to move out from some more countries. But I can’t not disclose names of those places before the regulatory process is complete.

International operations have over 22 per cent stake in your loan book. Would a rehaul of activity shrink the balance sheet?

The international balance sheet may contract while re-balancing the books. But it would not significantly impact revenues from global operations.    

BoB has a capital adequacy comfortable ratio among public sector banks.    

We are blessed with a comfortable capital position. So regardless of whether we raise incremental capital or not, we have headroom to grow. But capital raising is on the anvil. We are already coming to the end of the first quarter, equity capital raising in the third quarter seems a more reasonable assumption.

We are ready with the draft prospectus and all the processes. The government’s capital infusion last year gives us more room to raise additional equity capital from the market.

What are your thoughts about banks when you finish three-year stint in October this year? Are you looking at an innings beyond the term?

Actually I have not thought about it because I was thinking of focusing on the issue by end of this quarter. Let me say clearly, if anyone thinks he or she is critical to the survival of the institution, they are more likely to be in a delusional phase. And delusion results in personal unhappiness.

We have adopted a bottoms-up approach. I might have been the person who stirred the cup with milk. But, there has also been large engagement of the board and other stakeholders. The changes we are making are irreversible.

As far as my personal position is concerned, my view always is to do the right thing. And if that helps the organisation and organisation needs you, you are pretty much there. But I am not delusional to think that my staying is critical for success. I have played my role. Of course, I would like to continue to play my role. But I would like to think about discussing it when you come for the next press conference.