Bank of Baroda reported a 23% decline in net profit in Q1FY16 and said it expects more restructuring in future. Speaking to reporters, MD & CEO Ranjan Dhawan said the 9 million accounts opened under Jan Dhan Yojana were putting a strain on the bank and the lender will transfer these to a wholly owned subsidiary. Excerpts:
How do you plan to tackle the NPA problem?
NPAs are the future reserves of the bank and I don’t treat them as catastrophes. We have made huge provisions and, if we recover all of it, they will add to our bottom line in the days to come. We are, therefore, in no hurry to offload them at cut-throat prices. Of the sales we made to ARCs in 2013-14, none have been recovered.
Again, it is not their fault since the investment climate is such that getting rid of assets to ARCs in the recent past has not yielded expected results. We continue to try two things: Where we feel that an NPA account can be restructured, we go ahead and recast it and, second, in smaller cases, we try and enter into compromise proposals. Until and unless the economic climate improves, I don’t see selling as a major way of resolution.
While it is a solution in a buoyant economy, in current circumstances, it will not work.
How many accounts have you opened under Jan Dhan Yojana and what is the current status of theose accounts?
We have opened 9 million accounts and there is around RS 1,400-RS 1,500 crore in them. It is a strain on us in the sense that we have to handle such a large number. But we take it in a positive stride, that is, having 9 million accounts when India is slated to grow at 7-8% at some point of time.
We are shifting a lot of these people to alternative channels. Earlier, we thought that they would not use Rupay cards issued to them, but I have found that even these people can read numbers and use the Rupay cards.
How are you going to manage these accounts going forward?
The board has approved a plan to float a wholly owned subsidiary to address these accounts and we are in the process of formulating a plan for the same.
I don’t know whether the Reserve Bank of India will agree to it or not. For us, it is a separate business segment and the 9 million accounts opened under Jan Dhan
Yojana are likely to be shifted to the subsidiary. It will be a bank within a bank just like we are owners of Nainital Bank and have seven-to-eight subsidiaries abroad. It will conduct limited banking operations and will be a payment-bank-cum-microfinance institution.
What is your guidance on credit growth?
The general atmosphere remains adverse. So, growth is mainly coming at the retail level and in the SMEs, but, certainly not in large corporate credit. In any case even if it was, we are being highly selective in this area.
So, I expect one or two quarters to be relatively quiet. In the absence of major demand, while we have seen an improvement in our NIMs, but I don’t see any major improvement until demand improves. On the whole, I would
say that Bank of Baroda has weathered the current storm very well compared to some other players in the field.