Public sector lender Bank of Baroda expects to maintain its net interest margin (NIM) despite the rising cost of funds. In an interview with Sachin Kumar, the bank’s MD & CEO, Debadatta Chand, stated that the bank’s deposits are projected to grow by 11%, while advances are expected to rise by 13% in the current financial year. Excerpts:

Bank of Baroda’s net interest margins have been under pressure for the past couple of quarters. Will you be able to protect margins at the current level?

The pressure on the margin is an industry-wide phenomenon and most of the banks have seen their NIMs coming under pressure. The compression in net interest margins is because of the rising cost of funds. Interest expenses have increased at a higher rate than interest income, creating pressure on margins. In the current scenario, when deposit growth is constrained and the cost is elevated, we think that for the full year, we expect our NIM to be somewhere between 3 to 3.10%.

You revised deposit and advance growth guidance in the last quarter. What is your outlook on deposit and advance growth?

When we revised the guidance last year, the growth of deposits was lower than the advances, but now we have a balanced growth with deposit advances growing at 11.8%. We had revised credit growth guidance to 11-13% for the current financial year compared to 12-14% earlier and deposit growth guidance to 9-11% from 10-12%. Considering the current scenario, we will try to be on the upper band of the guidance with deposits growing at 11% and advances at 13%.

Banks are witnessing stress on unsecured loans. How is your unsecured loan book performing?

A year back, personal loans were growing at 60-80% on a year-on-year basis. At that time, we decided to moderate this growth. Now growth in personal loans has come down to 24% in the third quarter. Our personal look is currently around Rs 32,000 crore, which is smaller than banks. We will be looking at a moderate growth in personal loans and would like growth to be around 25-30%. Also, the slippages in the unsecured personal loans are only Rs 100 crore in the third quarter compared to the overall slippages of Rs 2,500 crore. So, the slippages in the unsecured loans are not significant.

What is your target for recoveries for the full year?

Going by the current progress, we are hopeful of achieving our annual target for recovery and slippages. We had earlier said that our recovery would be roughly around Rs 10,000 and slippages would be contained at less than Rs 8,000 crore. In the nine months, our recoveries have already reached Rs 7,500 crore and as the March quarter is usually more productive than other quarters, so we expect Rs 2,500 crore in the January-March period.

How will the steps taken by the RBI to ease liquidity tightness impact banks?

The measures aim to inject durable liquidity into the banking system. These are positive steps as it will lead to reduction in the cost of raising resources for the banks. These measures will help banks to protect their net interest margins.