The bank has shelved its plan to raise subordinated debt to boost its tier-II capital for the time being. "We do not need to raise tier-II capital to push the capital adequacy ratio. We will offload the low-yielding investments. There will not be any cap on credit growth," Rajagopal said.

Addressing his first press conference after taking over as Bank of India chairman, Rajagopal said: "I can improve our capital adequacy ratio by shedding some risk-weighted assets from our investment portfolio. For example, I can give Rs 1,000 crore worth of credit by offloading investments for a similar amount without affecting the CAR."

Outlining his strategy ofgoing for aggressive credit growth to maintain the profitability of the bank, Rajagopal said: "I don't want to bring down the credit deposit ratio by slowing down credit expansion. If I do that, the bank's profitability will suffer." Increase in credit growth will, at the same time, pull down the bank's capital adequacy ratio which as on September 30 was pegged at 9.4 per cent.

Reserve Bank of India has stipulated a minimum CAR of 9 per cent for all banks by March 31, 2000. With the aggressive credit growth planned, BoI's CAR may come down below the stipulated level, if not supported by additional capital inflow by way of tier-II capital.

"There is a dilemma.... But it is important to maintain the profitability of the bank. I cannot improve profitability unless I improve credit. There is a lot of opportunity in lending to the infrastructure sector. If the project is viable, I will fund it. If I leave a customer now, I will lose him. I want to improve the performing assets," he said.

Bank of India has Rs1,681 crore of non-SLR investments in its portfolio as on September 30. "Our first priority will be the high risk-weighted investments," he said. Rajagopal did not rule out selling at a loss to the face value. "One has to see the opportunity cost involved," he said. The average yield on the bank's investments as on March 31, 1997, is 10.2 per cent.

On the bourgeoning non-performing assets of the bank, Rajagopal said the situation is within control. "Our NPA target is to bring it down to 7 per cent," he said. The NPA figure for 1997-98 was a little above this.

INSIGHT
Cautious approach needed

The new Bank of India chairman is willing to take risks to boost the bank's profitability. However, it may not pay off as the difference between the yields in advances and investments is not substantial.

Moreover, it may not be easy to go for aggressive credit expansion when the industrial sector is facing a slowdown. The bank will have to tread this path cautiously as the risk of rising NPAs istoo high and may not justify a few basis points hike in the net spread.