Bank of Baroda (BoB) expects net interest margins (NIMs) to improve by 10 basis points (bps) as loans get repriced through FY23, MD & CEO Sanjiv Chadha told Shritama Bose. The pricing power has improved in the corporate segment and growth no longer demands sacrificing on margins, he added. Edited excerpts:

Why has your NIM fallen despite the repo rate hikes?

It’s a marginal fall; we were 3% or thereabouts, and we continue to be there. But, in the last quarter, there was some interest which came in from recoveries from some large accounts. Part of that accrued to the interest account. The other reason is that in terms of the increase in rates, that is something which will now start filtering down into the book. That happened towards the second half of the quarter. So, in terms of the full impact, that’s not something we would have seen. And again, our guidance has been that we would expect may be about a 10-bps improvement in the net interest margin over the course of the year. We stand by the guidance. Particularly with the interest rates normalising, that seems to be possible, along with good growth momentum. What I would focus on is that we have been able to keep our margins stable while having growth momentum. Both in aggregation will lead to the NIM growth. So, an NII growth of 12% from our perspective is reasonable.

While there’s good traction in wholesale, especially in project finance, there are concerns over competition and pricing. How are you positioning yourself?

We have been fairly disciplined there. Last year, because of surplus liquidity, you had to make a choice between margins and growth, and we chose to protect margins. Therefore, our growth in corporate was relatively tepid at about 3%. But now, we are seeing a normalisation of interest rates. The relative attraction of domestic rupee borrowings from banks vis-a-vis say ECBs or bond markets has improved. It is possible now both to grow your book and protect your margins. That’s what we have started to see in this quarter. So, we’ve had a total loan growth of about 18%, corporate grew 17%, organic retail was up 23% and all these have been possible while keeping our margins intact.

Do you see the rate hikes affecting your borrowers’ ability to repay?

I don’t think the current normalisation of interest rates – and it is a normalisation of interest rates – is going to have too much of an impact on the repayment capacity of borrowers. As for corporates, we’ve done a survey of 2,000 of our borrowers and we found that the interest coverage ratios were significantly higher for almost all categories – small, medium and large, as compared to where they were before Covid. So, for both reasons – balance sheets have strengthened and what we are seeing is a normalisation of rates – I don’t think there should be much impact on the credit quality or the repayment ability of borrowers.

What about demand?

Our estimate was that there would be a 10-12% growth for the system and we should grow somewhat faster than that. For the moment, we are standing by that guidance. Regardless of how things pan out, it should be significantly better than last year.

At what stage of development is your digital transformation initiative?

BoB World has been an outstanding story in terms of growth. Our share in the banking system is 6%, but in terms of mobile downloads, it is 10%, which means we are gaining market share every quarter. Today, active BoB World customers are around 22 million, which is probably one of the largest mobile customer bases you have, and 38% of our non-financial inclusion customers are already on BoB World.

It is having a tremendous impact in terms of efficiencies, reducing costs and a more active interface with our customers. Today, the number of customers using BoB World is three times compared to those who visit branches. It has helped growth in many areas. For instance, our personal loans have grown about 140%, which has largely been enabled through BoB World, which has allowed us to reach out to customers and give them offers which suit them and also underwrite good-quality loans. It’s been a game changer in terms of how the bank interfaces with customers, what would be the cost structures going forward and what are the kind of growth opportunities that are there.