Bank of Baroda has managed to double its business every three years and is compounding its growth by 25-26%, a credible achievement. The bank, however, needs to sustain the momentum after having opened nearly 500 branches this year. It is also hoping to add another 500 branches next year. Bank of Baroda CMD MD Mallya in an interview with Bruhadeeswaran R says the bank is adequately capitalised and would be able to meet Basel III norms.

How do you feel about bank?s progress in the last few years?

In last three to four years, we have grown consistently. In the first nine months of the current financial year, the top line has grown 35% year-on-year globally, while on domestic front, the business growth has come down to 20% y-o-y against 25% y-o-y we had earlier. Due to deceleration in the economy, the growth in the banking system has come down but Bank of Baroda has done better than the industry and the peer banks, and we expect the trend to continue. For the current year, we would grow around 25% y-o-y in top-line in the global business and the net profit would grow over 20% y-o-y. The slump in the domestic growth will be compensated with the accelerated growth in the international business. Every three years, we have nearly doubled our business. For instance, the business as of March 2011 was double of March 2008 figure. Therefore, we are expecting the business to double in March 2012 from March 2009 figure. Simply put, the bank has a CAGR of around 25-26%.

How would you read the trend in asset quality?

With the overall gross non-performing assets (npa) levels of 1.47% and net npas of 0.48%, our slippage ratio has been best among all in the industry at about 1.16% on an annual basis. Delinquencies is seen across the sectors and last year, we had reported high provisions because of the incremental delinquencies. In some quarters, there can be a lumpy account which turn into an npa, so one has to look at the situation over a full year. Going forward, the asset quality would hold up and is not expected to worsen. Our exposure to Air India is about R2,500 crore, but it?s not an npa, while the exposure to Kingfisher airlines for about R530 crore is an npa. There are other stressed sectors like power, steel and textiles, but we are not expecting any npas at all, at-least for the moment.

What is the strategy ahead?

Our bank is a financial conglomerate with a pan-India and international presence. So for us an international presence or business in a metro is as important as an operation in rural and semi-urban areas. Around 60% of our branches are in rural and semi-urban areas, and we would continue to have a larger ratio of our branches in these areas; around 60% of the incremental business comes from these areas. By March 2012, we would have added 500 new branches taking the total to 3,950, highest number of branches added in last four years. We have put in an aggressive plan for branch expansion, which would ensure that visibility and the brand image are encashed.

As for the overseas market, we are next only to SBI and a fourth of our total business comes from international operations. By March 2012, that would amount to R1.90 lakh crore; in 2008, it was around R53,000 crore. Since the international business has a small base, it can double every two years. Our current credit portfolio ratio will be maintained. This has been a steady and successful model for us in terms of our various verticals contributing, incremental growth in a equitable way.

What are the overseas prospects of the bank?

We are present in about 26 countries with 15 outlets in Gulf region alone such as Dubai, Sharjah, Abu Dhabi and Oman. We also have some presence in the UK and two branches in Hong Kong. This network, including the offices in the US and Brazil, contributes almost 80% of our international business. That apart, we also mobilise FCNR(B) and NRE deposits in our domestic branches here. Moreover, we have subsidiaries in Kenya, Uganda, Tansania, Botswana and Ghana.

We are a strong player in most markets and predominantly deal in trade finance, buyers credit, syndicated loans, loans for mergers & acquisition and external commercial borrowings. The large Indian diaspora perceives us as more safe and is comfortable doing business with us. We do not do much local business but in places like the UK, we have large local customer base who save with us, because we have been present there for a long time. In West Africa, we are perceived as local bank because we have been there for 60 years now. Over the period, despite difficulties, we have never shut down.

Has the freeing of the interest rate on NRE deposits helped?

We have seen good incremental deposits of R2,000 crore coming into this segment after the deregulation, but the growth of FCNR(B) deposits has not been significant. Our retail term deposits have grown at around 22%, ahead of the industry growth rate of 18%. We should maintain our CASA at 34% and so the reliance on bulk deposits is low, with the share at less than 20% of our deposits.

Does the bank have enough capital to grow?

Our capital adequacy ratio is about 13%, without the profit made in the nine months to December 2011. With the profits, the ratio would be 14.5% of which tier-I would be almost 10%. However, we are raising capital in the current year before March, 2012, and the government will infuse R775 crore raising stake from 57% to 58%.

We are also getting some infusion from Life Insurance Corporation (LIC ) through a private placement of about 5% of the paid-up capital for about R1,600 crore. So by March 2011, we would be getting a total of R2,675 crore, which would take the CRAR to 16% and the tier-I to 11.5%. We will be adequately capitalised to meet the Basel III rules.

What kind of challenges will the entry of new banks pose to BoB?

It will be a win-win situation for us. Customers would get better quality service at an affordable price while banks will be able get new and a larger number of customers.