Bank of Baroda (BoB) expects slippages (fresh accretion of bad loans) to decline from the fourth quarter. The bank ratcheted up slippages of Rs 10,387 crore during the December quarter, against the average of Rs 6,000 crore it reported in previous quarters. In an interview with FE, the newly-appointed managing director and chief executive Sanjiv Chadha said, "Slippages have been around Rs 6,000 crore each quarter and they have been a little higher this quarter because of the divergence issue. Based on my understanding, the slippage ratio from this quarter onwards should trend downwards."
In addition to reduced slippages, BoB will also look to improve its quarterly recovery rate, which has remained at around Rs 4,000 crore a quarter for the last few quarters. For this, it may resort to referring a few accounts for resolution through the insolvency route.
Chadha explained that BoB has not had any chunky recoveries from cases in the National Company Law Tribunal (NCLT), unlike other banks who benefited from court-monitored resolutions in some large exposures. The bank had sold off its exposure to Essar Steel to Hong Kong-based SC Lowy in 2018. "In the case of BoB, there are not too many large exposures which are there in the NCLT and to that extent, the upside has been capped. The fact that we don't have too many existing exposures doesn't preclude the fact of new references (to NCLT)," Chadha said.
Even as the bank’s credit growth has been significantly below systemic growth (0.67% year-on-year growth in Q3), Chadha expects the bank’s credit growth to be faster than the system in FY21 on the back of three factors. These include the completion of the merger process, the retreat of competition from the corporate lending space and the reorganisation of non-banking finance companies (NBFCs). "It will be difficult to say where we are likely to end up by the end of the year (FY20), but what seems to be reasonably certain is that the bank is fairly well-poised to grow in the coming year. Whatever happens, some of it may get reflected in the figures up to March and some in the figures after March. If we take a longer timeframe, say, the next six to 12 months, there are some positive factors playing out which work well for the bank," he said.
Chadha stated that even as a number of banks have decided to focus on retail opportunities and restrict corporate lending, in terms of mandate and positioning, BoB will always be looking at both retail and corporate segments equally. "So I think over the coming 12 months, there should be large opportunities for the bank to grow, even if the overall economic growth takes a little more time to rebound," he observed.
In the retail segment, too, BoB has taken away share from NBFCs, as in the case of car loans, where its portfolio grew 40% y-o-y in the December quarter. As NBFCs go through the process of repositioning themselves, banks can explore opportunities beyond buying pooled assets from them. Chadha said that NBFCs have demonstrated some capabilities which are very valuable. "They do automated underwriting very well and reach the last mile very well.
They have good systems of online monitoring. Their collection systems are also very efficient. So I think it makes a lot of sense to expand the collaboration with NBFCs and go beyond pool purchase to actively work with them in terms of underwriting, collection, monitoring and also support them where they have challenges," he said.
There is little scope for interest rates to fall further, especially as well-rated borrowers are today able to extract cheap pricing from banks, Chadha said. "For a large number of corporates, the interest rates today are very competitive," Chadha said, adding, "In case of the best-rated clients banks still have to struggle to get business."