Bank of Baroda reported a 59% y-o-y jump in profits for Q2FY23 on the back of a good increase in advances and a big drop in provisions. Sanjiv Chadha, MD& CEO, told Shobhana Subramanian, rates on deposits need to be raised judiciously to ensure the additional collections justify the costs.
What could be sustainable growth rate for advances for the next 8-10 months?
We would like to be disciplined on margins and grow in line with industry. My sense is a 12-15% growth for the system seems doable and we would like to grow in line with this or better. Given the base effect it may not be fair to extrapolate the growth we have seen in Q1 and Q2, especially in retail loans. However, there is good potential in the corporate segment.
Deposit rates haven’t risen as much as one would have expected, given deposits are growing very slowly compared with loans…
There has been an increase in deposit rates. But, the challenge for us is that we are not really sure of the price elasticity. We need to be judicious with the rate increases else there would only be an additional cost without an impact.
Also Read: Fall in bad loans, record loan sales push BoB net 59 pc to Rs 3,313 cr in Q2
How are you expecting yields to move?
We believe the full impact of pricing power is still to play out. The loans linked to the external benchmarks have got re-priced, but the MCLR moves up with a lag and corporate loans are benchmarked to MCLR so there is an upside there. For us, given corporate loans are about 50% of the book, there is room for an increase in yields. As the MCLR moves up, banks will get more pricing power and we expect our margins to improve by 10 bps.
Are the slippages from the Covid-restructured portfolio high?
Actually, over the last two years, through Covid, both gross and net npas have been trending down. We believe things have stabilised because corporate balance sheets today are in better shape. Therefore, we feel credit costs should be benign and we have guided for credit costs of 1-1.25%. Also, the recoveries from the NCLT are 25-30%, so there is some upside there for us since we have made provisions of 98% on these assets.
