Gross non-performing assets of Bank of Baroda, the third largest PSU bank after SBI and PNB, shot up 149 per cent to Rs 42,991 crore in the June quarter after the Rs 5,395 crore loss in 2015-16. In an interview with GEORGE MATHEW, BoB managing director & CEO PS JAYAKUMAR and chief financial officer VS NARANG said the pace of increase in bad loans has come down and recovery steps are expected to improve. Excerpts:
What’s the impact of the asset quality review? Has the NPA scenario improved?
We have already seen in FY16, NPAs were Rs 40,000 crore. In the current year, in terms of number the gross NPA level should be somewhere between Rs 45,000 crore and Rs 50,000 crore. Whether it’s increasing, obviously the numbers are increasing. Whether it has peaked off you can derive your own interpretation… from last year’s number, it has peaked for us and other banks. So whether the stress has come down, it’s not the case. The numbers are increasing. But the pace of increase in accretion of NPAs has definitely come down.
Are the loan recovery measures working out? Where’s the stress coming from?
Stressed sectors continue to be the same… steel, textiles etc. There’s no chunkiness… any lumpy account which has come and inflated figure, that’s not the case. The biggest slippage in our case is Rs 265 crore (last quarter). Recovery steps are an evolving thing. Sarfaesi Act came and we thought all the problems would be solved now but it had its own set of problems. That’s getting resolved. Debt Recovery Tribunals were supposed to bring the resolution of recovery issues and recovery become faster. They also had issues and take time. The Bankruptcy Law has come. It should be easier now.
Lending rates have not declined to the extent of the cut in Repo rate by the RBI. Is the MCLR (marginal cost-based lending rate) system working?
The system is working. MCLR rates of most banks are more than the base rate. The computation has been standardised. Uniformity is there in computation. Policy rates have been reduced by 150 basis points. But has it happened to that extent, it hasn’t. Transmission had been to the extent of 70-80 bps. It’s not possible also. The earlier formula was allowing flexibility to each bank to compute the rate and take the cost of funds to be decided by individual banks. The way it’s there now, it has become more standardised.
Is credit offtake picking up? What’s your assessment on credit demand?
July was a good month. Disbursements will happen now. It takes about 45 days for customers to draw down the money and create security charges etc. We would still like to stay with the guidance we have… a domestic growth of 10 per cent and 5 per cent growth in international business. But we also recognise that our portfolios are under churn. If there are opportunities to exit we would like to do that. What we need to mention is how to break the portfolio into what we would like to let go and what we would like to retain and see how it’s happening on that portfolio. That we would start sharing from next month.
Many banks are now going aggressively into retail lending. What’s your plan?
What we are doing now is putting some building blocks in place which were not there. For example, getting a good collection machinery which is a pre-condition for any lending business. The other thing is to focus on the existing customer base… which is extremely large. We are creating in every location a specialised mortgage unit. We have centralised the processing so that we can have better and consistent turn on that. We have gone into a risk-based pricing that incentivises people based on the risk characteristics. It benefits people when their credit rating goes up.
Do you need more capital this year?
We have 13.2 per cent. That’s quite good. We can go without more capital because we have got enough assets… which we could pay off and generate enough capital to support our growth. Over a period of time it also depends on how profits play off… profit numbers start moving up quickly then it will be a good thing. If you go to the market to raise capital on the strength of your growth, it’s always a good way to do it. But if it’s going to be to fill the holes, then it’s a different story. We would like to go to the capital market to raise capital… we wanted to support growth.
Do you see consolidation happening in the banking sector?
Let me put it this way. Right now we are focused on accomplishing a lot of our goals by March 2017. At least in the near term, we are not thinking in terms of consolidation. Let’s see how it works.