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Bank of India has aggressively reduced its share of bulk deposits. V R Iyer, chairperson and managing director, tells Manojit Saha that the step will impact margins favourably. Edited excerpts:
How will the recent Reserve Bank of India measures on squeezing liquidity impact the bank?
We believe RBI’s measures will be short term. The steps have immediately impacted the liquidity in the system and short-term rates have gone up. So far as the impact on the bank is concerned, we have a well-diversified deposit base and a major part of the business is done through deposits. Banks that are depended on wholesale funding would affect more because of these steps. The share of high-cost deposits (including certificate of deposits) in total deposits is about 8.5 per cent. It was around 15 per cent in March and we have reduced it as credit deployment was not there.
Our overnight borrowings are done to take the advantage of interest arbitrage. As such, there may not be much impact on the borrowing cost. There is no plan to increase the base rate. But, if these measures persist for a long time, then it may have an impact on margins in case the bank needs to go to the short-term market.
Have you seen a pick-up in retail deposit?
My retail deposit has also picked up very well in the past four fortnights. Deposit mobilisation through the branches have gathered pace. Since we have reduced our high-cost deposits and focusing on retail deposits, this will help us improve the net interest margin in Q1.
But you have reduced the base rate recently. Will that impact the margins?
A 25 basis points cut will impact income in the next nine months. But, I should also say our cost of funds have come down in the first three months. We are hoping improvement in retail deposit mobilisation will help us protect the margins. We expected NIM (net interest margin) to improve to 3.2 per cent on the domestic side, in this financial year, which is 3 per cent in March quarter. On the international front, we see NIM rise from 1.05 to 1.20.
Credit growth has been sluggish. How do you plan to boost loan growth?
We have high unutilised portion in fund-based and non-fund based facilities. We found that our pricing is high and not in line with the market. We are trying to revisit these issues. That should help in better utilisation of loans, which are already sanctioned. My credit-deposit ratio in domestic business is about 67 per cent, which means we have a lot of liquidity. This is also an area, which we are planning to improve.
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The yields on government bond have gone up. How will that impact your treasury operations?
The entire banking industry made good profit in the first quarter. Now, that will not be available to us in the second quarter. We have to wait to see if there are mark-to-market losses.
How was the growth in first quarter?
First quarter business growth was healthy, which was about Rs 50,000 crore, but about Rs 16,000 crore was due to currency depreciation. Upon factoring in the currency movement, Rs 34,000 crore growth is also healthy. In the first quarter, the loan growth was 17 per cent and deposit growth 22.6 per cent.
How has the overseas book performed in the first quarter?
International business, as of March, was around Rs 1.76 lakh crore, which increased to about Rs 2.1 lakh crore in the June quarter. Advances have improved by 25 per cent and deposit growth was 38 per cent from the international operations.
