With improved performance, state-owned Bank of Baroda is moving up in rankings among the top five banks in the country. The bank in recent years has made all efforts to expand its domestic and international business. Chairman and managing director of Bank of Baroda MD Mallya spoke to FE?s Hemang Palan and Kumud Das, outlining his sustaining strategies to push growth amid economic slowdown and looming drought. Excerpts:
How do you see the current credit growth scenario of BoB?
The Indian banking sector?s credit growth is anticipated at around 20% for the current fiscal. In first quarter of the current fiscal, the credit pick-up was low. Thus, in subsequent three quarters the credit demand and credit increase could be stronger than 20% on an average. Bank of Baroda?s advances are growing at 25-26% on a year-on-year basis. We?ll be able to sustain it throughout the current fiscal.
Which sectors would create more demand for bank credit?
We are witnessing a good demand for bank credit from sectors like infrastructure, cement, steel, housing, auto and SME. The real estate prices in the country have corrected a lot and thus we have witnessed an upsurge in housing mortgage credit. Our bank?s housing loans have grown by about 23-24% in the first four months of the current quarter, on an annual basis. It?s a reasonably good growth in the current scenario. As we move ahead with festival season, I think this segment would show a stronger growth.
How can drought affect the banking sector?
I do not anticipate a very substantial negative impact both in terms of credit delivery and also in terms of overall scenario as per agriculture sector is concerned. Our agri-credit is expected to grow at 25% in the current fiscal. Many private and foreign banks are currently going slow on retail lending in the country.
In the given scenario, how do you intend to encash on retail credit demand?
We are reasonably aggressive in retail lending while at the same time maintain the overall quality of the growth in this segment. This portfolio is also likely to grow at 23-24% in the current fiscal. In the first four months of the current fiscal, our vehicle loans have posted over 35% growth on a smaller base. We are not focusing much on unsecured loans as delinquencies are high. We have downsized this portfolio. BOB cards are doing reasonably well and we are cautiously expanding our credit card business.
How are restructured loans going to pose a challenge for BOB in the subsequent quarter of this fiscal?
We restructured loans worth Rs 1,596 crore in first quarter of the current fiscal. Our aggregate restructured loans are worth Rs 4,156 crore as-on-date. It?s not too significant considering our overall asset base. The quality of our restructured portfolio is reasonably good. We do not expect the situation to worsen furthermore, especially when the economy is showing the signs of revival. Post March 31, 2009, we have got no pending applications for restructuring the loans.
How do you foresee the interest rate scenario?
The interest rate scenario, perhaps, will not undergo a change till a next couple of months. The interest rates are likely to remain stable at least till October, 2009. When credit demand picks up and the liquidity goes down, looking at the inflation number at given point of time, the interest rates could get reviewed and move upwards after October. The current trend suggests that our bank?s NIM would slightly deplete in second quarter of the current fiscal, although it would improve again in the third quarter.
Has BPLR as a concept lost its charm as most of the banks in India lend below BPLR level?
Although it?s a benchmark, the banks do quote their lending rates at less than BPLR levels. As many as 35% of our loans are given at sub-BPLR considering the other 35% loans given below BPLR as regulatory lending as per the norms. I suppose the Reserve Bank of India, too, believes that BPLR as a concept in the Indian banking system needs a radical change now.
Which part of the continent you have identified to go for your proposed acquisition?
I have already stated in the past that we are open to a suitable acquisition opportunity originating from any part of the world. We have got very strong presence in Africa across seven countries and thus may not look at an inorganic growth there. To me, far east region seems to be more lucrative than Europe or North America at the moment. However, we are not going for an acquisition in the immediate future.
How has Baroda Next campaign helped you so far?
The campaign has helped us a lot although it being intangible in nature cannot be quantified in numeric terms. Our bank?s visibility, responses from stake holders, the credit off-take and customer perception have increased and become substantially stronger due to Baroda Next campaign. Our brand value has increased both in domestic as well as in the international market. We do not intend to have a brand ambassador for the bank, although we had appointed one in the past.
Any recruitments in the current fiscal?
In the last four months, we have recruited 200 people from reputed institutes, including IIMs and IITs in scale I, II and III levels. We are in the process of recruiting 1,000 probationary officers and 200 specialists in departments like credit, forex, treasury and IT. Although we cannot pay high salaries on par with the packages currently offered by some private lenders, we have been able to attract the best talent as these people look forward for job satisfaction in a large institution like our?s.