Even as the 2011 calendar year ended on a weak note for the industry, Bank of Baroda (BoB) was able to sustain its asset quality and margins. In an interview with Sheetal Agarwal, the bank’s chairman and managing director, M D Mallya, spoke on the way forward and his views on the banking industry’s prospects. Edited excerpts:
BoB has maintained its asset quality so far. Do you expect the trend to continue in the second half?
Given the weakening macro, our references to corporate debt restructuring (CDR) and restructured accounts have been on the increase. But one has to look into the overall basket of lending, what is the percentage of accounts restructured, what is the magnitude of that and what has been the performance of these restructured assets in terms of slippages in the last few years. We have always been giving guidances that our slippages would be in the range of 1.25 to 1.3 per cent. I would maintain this guidance.
How long do you think these asset quality pressures will continue? And, which sector will be the worst hit?
I don’t think we have overcome all the pain in asset quality. It could certainly continue for another year or so. There are four-five sectors which have been experiencing pain such as textile, steel, realty, telecom and aviation. There is a connected issue with reference to medium and small enterprises. These are suppliers to larger players and will, hence, be hit.
What is BoB’s outlook on net interest margins (NIMs)?
Our global NIMs guidance is about three per cent. We have done up to 3.25 per cent, much better than the guidance given. Domestic NIMs, at 3.6 per cent, have been much higher than the guidance of 3.25 per cent. The guidance remains the same. We should be able to protect NIMs we achieved in the first two quarters.
What is your outlook for credit growth?
Of late, we have not seen this year lots of new projects coming up for different reasons. Therefore, fresh sanctions of credit have drastically come down in the recent past. I would expect a slight change in that. As we move forward, maybe some cheering up could be there as far as decisions on investment are concerned.
Going to the next year, if inflation and interest rates were to come down and if the economy starts picking up, it would change the mood and sentiment, including a reversal of trend on fresh capacities. It could, therefore, call for incremental funding.
What is BoB’s credit growth target for 2012-13?
For this year, I am confident the industry would grow by about 18 per cent, which means BoB would grow by 20-21 per cent, as we have always been two-three per cent above the market growth. That leadership position in terms of growth would be maintained this financial year.
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Gross domestic product growth could continue to be 7.5 per cent plus for the next year. Hence, 18-19 per cent of credit growth (for the industry) should not be difficult.
When do you think we can expect a rate cut from the Reserve Bank of India (RBI)?
We are all awaiting our credit policy from the RBI on 24th. The apex bank has been consistent in one thing, it would like to ensure that inflation is fought at any cost. At this point in time, one could clearly say inflation has been slightly brought under control. The expectation is that maybe by March-end, one could look at inflation levels which are substantially lower, say at 6.5-7 per cent. By then, there may be a possibility of rate cuts.
Is a cut in the cash reserve ratio (CRR) required right now?
Liquidity is in a little bit of a strain because banks have been borrowing substantially from the RBI. Inflation is perhaps coming down slightly. And, therefore, if the CRR cut comes in, it would inject liquidity into the system. But then, it is for the RBI to take a view on that, as to whether it is an appropriate time to do it.
What impact do you see after the freeing of the non-resident external rate?
The customer is getting an incremental interest rate of over five per cent. That is a significant thing and, therefore, one could expect the portfolio to expand significantly. It is a too early to assess the impact because the deregulation came in quite recently.