Bank of India (BoI) expects cases of restructuring to start coming down in the second half of FY13, according to VR Iyer, chairperson and managing director. In an interview with Vishwanath Nair & Aftab Ahmed, she talks pushing growth in the bank?s housing loan business and adds a move towards a dual base rate could help banks price loan more effectively in the current environment. Excerpts:

What is the pace of restructuring you are currently seeing? What is your outlook for the year?

Over the last two years, we have seen an average of R2,000-2,100 crore in restructuring per quarter and annually, we have seen restructuring of R8,000 crore plus for the bank. For this quarter, accounts that are listed in corporate debt resutructuring (CDR) cell so far are at R515 crore. We still have one month to go and we have not got any additions in the last two weeks. There may be some additions, but we believe it will not be to the extent of what we have seen in the last couple of years. Close to September you should see a decline in restructuring.

Has RBI spoken to banks over asset quality situation?

RBI in a meeting before the policy announcement sought our feedback and heard the actual concerns of the bankers and various sectors. They are concerned about these issues. We spoke to RBI on gems and jewellery sector, know-your-customer (KYC) violations and gold loans. These were the only issues, I would say, RBI was concerned about. The central bank was also very clear there will not be any dilution on the proposed restructuring norms.

While we have seen some rate cuts by RBI, banks have not passed on the benefits to the customers. How long will you take to transmit these rate cuts? Will a CRR cut solve the problem?

RBI had cut repo rate by 75 basis points since January. But a repo rate does not mean any immediate cost advantage for the bank because we are relying more on retail deposits, which forms over 80% of total deposits. That is also one reason we are unable to cut rates immediately.

CRR will give the bank an immediate advantage, but CRR cut alone may not be adequate. The economy must improve and I think that will happen only when the government starts spending. That will improve the liquidity scenario and will give us more deposits. The pace of growth of current account savings account (Casa) has slowed. In the last five years, it has come down from 38% to 30%. On other hand, we have pressures of slippages, restructuring and increased provisioning and dynamic provisioning. We have to take care of all that.

Credit demand has also fallen significantly over the last year. With a base rate of 10.25%, is competition affecting your business?

We don’t have much problem as far as corporates are concerned. Though we have not reduced our base rate, we always have a spread that we can tinker with. Wherever there is an opportunity, we pass on the benefits. Where we are actually facing stiff competition due to a slightly higher base rate is retail. What we have noticed is that customers are willing to pay slightly higher price if their requirements are met quickly. We have started tying up with different builders across the country and have improved marketing of our retail loan products, so we have seen a welcome growth in the housing segment that has gone from 11-12% to 25% of the retail book. We would be happy if RBI allows us to move to a dual base rate as they have done in the past. Since corporates can afford to pay a bit more than our retail customers, we could always reduce our base rate for the retail segment.

What is the situation on the margins front? What can we expect during the current year?

On the domestic side, we could improve our margins from 2.8% to 3%. On the international side, margins slipped from 1.20% to 1.05% mainly because of some higher NPAs. For the current year, I do agree that due to low interest rate scenario, it is going to be more competitive and, therefore, difficult to manage NIM. We are hoping to improve domestic margin by 10 basis points this year. This will be largely because our domestic credit deposit ratio is low at 69%, which we can improve to 74% over the next two years.