Expect asset quality to improve only after Q2

For Bank of Baroda,the next two quarters — Q1 and Q2 — will be in line with the fourth quarter. After this period,we will see some improvement in the asset quality,but I don’t think we will see the situation getting worse. As far as restructuring is concerned,after this quarter we shall see continuous improvement. The finance minister has discussed large projects that are stuck with bankers and companies. All the projects had four or five issues,like land acquisition,fuel linkage,environment clearance and forest clearance. The FM had very clearly said that by the end of this month,at least a few cases will be cleared. Out of 200-250 projects,even if there are 25-30 projects that can be cleared,it will be very meaningful.

Bank’s gross NPA in Q4 was stable,do you see some improvement in the coming quarters?

As far as the domestic book is concerned,current quarter and next quarter will be consistent with the previous quarter,but after that there will be an improvement. I do not see any additional or unexpected stress on the portfolio. In the international book,NPAs were slightly high because of one-time item which has been taken care of. I think now onwards NPAs on the international book should also improve.

Are you cautious about lending to certain sectors?

Power is clearly one sector where we are cautious because there are uncertainties. I am not only talking about power generation,but the whole set of activities around the power sector. We are not worried from the demand-supply perspective,but we are concerned about the regulation in the sector. Iron & steel is another sector where we would be cautious. In the telecom sector too,we have to be careful and check company’s revenue model to see if it is sustainable or not.

Is your cost of funding at a comfortable level?

You can’t decide to have a particular level of cost of funding. The important thing is what kind of spreads you can maintain. There has already been a sizeable reduction in rates particularly on bulk deposits,which is positive for spread and it will continue. There are constrains in reducing rates on retail side because saving schemes will be offering a particular yield and banks don’t have the leeway to go below that otherwise there will be a flight of deposits. Another factor is inflation as depositors expect some sort of real returns. So,these will be the determining factors in bringing down the cost of funds.

What is loan growth looking like in Q1?

First and second quarters are always slow. I would still expect 14-15% growth year-on-year.

If rupee continues to fall,what kind of impact it can have on banks?

Bank portfolios don’t remain unhedged and are operated at fully hedged levels. The question might be relevant in case of our client portfolio. After whatever happened,there is a lot of awareness and banks are insisting their clients hedge forex exposures. So,I think a very large part of the client portfolio is also hedged or people have natural hedges in place. A couple of months ago,we did an assessment of our client portfolio and found level of hedging to be satisfactory. We are reviewing it.