Do you expect a spike in bad loans in the banking sector once the moratorium ends on August 31?
The impact of COVID-19 is likely to influence diverse sectors as there will be contraction of overall GDP by around 5 per cent along with possible cash flow issues with several segments of borrowers. As indicated by the RBI, gross NPA ratios of the banking system are likely to rise to around 12.5 per cent by March 2021 from 8.5 per cent in March 2020. Banks, in general, and BoI ,in particular, are already seized of such a possibility. Necessary safeguard actions are underway to keep such impact to bare minimum. However, we also expect regulatory dispensation to cope with the situation. The RBI has indicated restructuring of corporate, MSME and personal loans, which will lessen the stress on these sectors. Banks will also be helped by necessary provisions already made in anticipation of such stress.
Do you expect the RBI’s proposal on loan restructuring to tackle the stressed assets and NPAs?
The RBI announcements on August 6 have permitted restructuring of stressed assets, caused by the COVID-19, across corporate, MSME sectors as well as for personal loans segments, without downgradation of assets quality. That means these accounts will remain as standard assets, post restructuring. The details of the scheme, of course, will be defined by the Expert Committee. Notwithstanding higher provisions of 10 per cent suggested by the RBI, this measure will be of great relief to the borrowers as well as banks.
What’s your assessment on the impact of Covid pandemic on various sectors? Which sectors are facing problems?
As we know, impact has already been felt on travel, tourism and hospitality sectors including the aviation sector. Secondly, as global trade is expected to contract by 12 per cent during 2020, the major exports sectors of our country, such as gems & jewellery, textile, petroleum products, machinery & equipment are likely to be impacted adversely. The construction and real estate sector will be another sector, which will be adversely affected. The MSME segment will be one of the vulnerable segments. However, as soon as logistics and labour supply position improves, the industry condition will also restore to normalcy.
What’s the progress of government’s special MSME package? Will you be able to meet the target?
The government has formulated various schemes which are being pursued by the bank in right earnest. Under Guaranteed Emergency Credit Line (GECL), so far we have sanctioned about Rs 5,200 crore and we will be able to meet the targeted amount of around Rs 6,500 crore. The latest changes brought in by the government under GECL, namely, inclusion of individuals and tweaking of loan/ turnover criteria, would bring a significant change in the way these sectors are supported by banks. Similarly, under PM Svanidhi, Bank of India has been in the top 3 in supporting street vendors, one of the most vulnerable segments.
The RBI has hinted at inflation remaining at elevated levels in this quarter. Where are interest rates headed?
Elevated inflation level is due to supply bottleneck and disruption of logistical services, which may be regarded as a short-term phenomenon and as indicated by the RBI, it will come down in H2 FY2020-21. As regards interest rate, it will have a softer bias in tune with reduced policy rates and continuation of the accommodative policy stance.
Despite 115-bp cut in repo rate, credit offtake remains sluggish at around 6 per cent. Do you see a pick-up in the near future?
At the outset, credit offtake is not a function of interest rate alone. Credit growth of the banking system during the current year so far has been 5.8 per cent YoY against 11.2 per cent growth during last year. Looking to the lockdown condition for last five months and negative growth in industrial output, the lower credit growth is not unexpected. The cut in repo rates and commensurate transmission by banks can only ease the supply of funds. But unless demand conditions improves (consumption and investment), we may not witness a durable credit growth. The overall economic condition is expected to improve in third and fourth quarters of the current year.
What’s your capital requirement this year? How do you plan to raise it?
Our capital adequacy as of June 30 stood at 12.76 per cent, which has been adequate. At about 7 per cent advances growth, we may require about Rs 7,000-8,000 crore additional capital to take off growth Q3 onwards. We plan to raise through a mix of QIPs, Tier-I bonds and, of course, capital infusion by the government. We are working out the capital requirement now and would seek our Board’s approval for the same.
Have you planned any rationalisation of branches and operations?
We have been pursuing branch and ATM rationalisation measures with a view to reducing operational costs and efficiency in the use of resources. During last two years, since April 2018, merger/closure of about 45 domestic branches has been undertaken. Similarly, around 2000 unviable ATMs have been closed/ relocated. For improved services and better customer experience, we are expanding cash points with setting up of cash recycling machines having additional functionalities. In international operations, we have closed/merged 9 branches/ subsidiaries/ representative offices in 7 countries during the last three years.
What are your plans to offload non-core assets or business and any timeframe for that?
Earlier, we offloaded our stake in few entities to the tune of around Rs 730 crore. During the last three years, we had sold non-core assets around Rs 330 crore. In fact, we had earmarked assets for sale around Rs 2,500 crore. However, looking to the market conditions, the response has been tepid and we have decided to wait for a more opportune time.
What is the impact of lockdown on cash dealings?
The lockdown and social distancing has encouraged digital transactions, which have increased over 20 per cent for the past few months. UPI transactions have increased from about 74 billion in February 2020 to 88 billion in June 2020. In our bank, digital transactions increased by 15 per cent during a span of five months between March 2020 to July 2020. The surge in digital transactions is akin to what we witnessed post demonetisation.
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