Looking to up loans to agri, SME: Bank of Baroda's Mundra

SS Mundra - Deputy Governor, RBI.

Saikat Das & Santosh Nair

Investor concern over the quality of its assets has resulted in Bank of Baroda shares underperforming the Bank Nifty by a wide margin over the last year. The banking index rose around 12 percent compared to a 14 percent decline in the BoB stock. In general, public sector banks have fallen out of favour with the market, as they have an outsized share of the loans to the sectors that have been hit the hardest by the ongoing slowdown.

S S Mundra, the new chairman and managing director (CMD) of the bank, has three priorites.

“I will continue to focus on asset quality. Secondly, I want to slightly shift the gear to bring a more widespread growth on the credit side instead of remaining too much wholesale banking focused. Finally, I want to enhance the technology reach or rather say alternate channel reach of bank substantially," he told moneycontrol.com in an exclusive interview.

Mundra is into his second innings at BoB. Before becoming the executive director at Union Bank of India, he had been with BoB for more than 30 years.

Below is an edited excerpt of the interview:

Q: What are your top three priorities for the bank?

A: The bank has been doing well in all the parameters. In my personal philosophy there is no such thing like I have to just see that all the existing things are put to stop and thereby, forcibly bring something.

But broadly, I am clearly having three priorities. One, I want to continuously be focused on asset quality. There are signs of stress in economy as well as in banking. We will intensify the recovery efforts.

Second, in business area I want to slightly shift the gear to bring a more widespread growth like in the credit side instead of remaining too much wholesale banking focused. I would like my growth from agriculture, retail, small and medium enterprises (SME). It should be slightly higher than the corporate book growth. Consequently, the whole balancing in your portfolio becomes more evenly distributed. The same would be true towards the deposit side that you try to improve more retail deposits.

Thirdly I want to enhance the technology reach or rather say, alternate channel reach of bank substantially. As of today in my opinion, our Automated Teller Machine (ATM) network in respect to number of branches is slightly on worse side compared to peer groups. So, there is lot of scope that I can enhance the number of ATMs, may be number of point of sale (POS) terminals, more promotion of internet banking.

Q: Besides retail, agriculture and SME are also experiencing a lot of stress. So, what would the game plan here be?

A: When stress is in economy then every sector is facing the pressure and going by whatever happened in last six months to one year. I don’t think that SME and agriculture are showing any worse performance than these so-called large corporates have shown. So, that being the case the advantage is that you have a widely disbursed credit risk when you are addressing to this constituency and they have been with us for very long years. So, I don’t perceive that it will be per se a risky strategy.

Q: Most of the banks are unlikely to meet priority sector lending (PSL). What about Bank of Baroda (BOB)?

A: As most of the banks have also indicated that because of the significant change in definition (of PSL) at the beginning year there would be a gap. While formulating the scheme the Reserve Bank of India (RBI) has also realized it. I also feel that we will have some gap but it may take a year or two to fill in that gap and reach back to the old percentage (40 percent).

Q: The restructuring of Rs 2 lakh crore power loans is yet to be free from hurdles. Earlier the deadline was extended till December 31. Again, it was further extended to March 31. This time too, it is stretched. What is going wrong?

A: Firstly, let us understand, nothing is going wrong. We jump to conclusion very fast that if some timeline is given, things are going wrong or things are not working.

India has a federal structure. For example, the goods and services tax (GST) roll out too is taking time to get the final shape. In a federal structure these things do take time. There would be some area of agreements and disagreements both. So, the process is very much on and the extension of three years, six months in such a process is not something which is very unusual.

Of course, from bankers view point there is no reluctance about investing in those state government bonds (as proposed in the restructuring scheme to tune of 50% credit exposures). That is not the point of any disagreement. The point of discussion would be what kind of coupon (interest rate) we get on those bonds. That will be the area of discussion and negotiation.

Q: As on date what is your total exposure for entire power loans?

A: Entire power figure will be close to about Rs 25,000 crore.

Q: There are banks which are having high share of bulk deposits as much as 30-33 percent. What is the current status at BoB?

A: We have shed bulk deposits quite substantially. It used to be around 27-28 percent at one point of time and by December it was already reduced to between 18-19 percent. At the close of the fiscal year, we should be not more than 15-16 percent which is very much within the guideline or within the target which we have set for us.

Q:  On deposit front, how are you placed to garner deposits via current and savings accounts?

A: We have been able to maintain our CASA percentage vis-à-vis the total deposits which has always remained at 30 percent plus. So, we are able to defend that. However, it is a challenge to get an incremental percentage. It is not that easy that I must agree.

Q: How do you expect interest rates to pan out in 2013-14?

A: The scenario is going to remain challenging but I would not rule out the possibility of some more rate cuts during the passage of the year. It would of course depend how the inflation, going forward, is moving, Let’s say inflation comes under control, economic activity picks up and with the improvement in export sentiment, if the current account deficit also narrows down then the environment for further policy easing would be quite conducive.

Also read:  Record bank borrowings: What do they indicate?

Q: What room do you have for any further rate cut after considering cost of funds?

A: Today, there is hardly any room for cutting rate. In January, RBI reduced both repo as well as cash reserve ratio (CRR) (by 25 bps) and that cut was fully transmitted by the banking industry in the system. Almost every bank reduced the repo rate by 25 basis points or so.

After doing that while the lending rates have come down deposit rates in selective pockets have rather increased. That is the journey from January till now. So as of today, there is no adequate reason that you can take a call on cutting the lending rate.

However as we enter into April, there would be easing in liquidity position which always happens every year. Maybe, the advance tax money will start flowing back. The government may be spending back. So, once the situation in the marketplace comes to a normal level then we would be able to take a call.

Earlier, I had indicated that we expect to grow both credit and deposits by 15-16% on average basis.
Q: You had hinted that there were some borderline cases for asset quality pain. Do you still stick to it?

A: I had already indicated in my last quarter about it. I stand by the same statement. I will not be able to respond to it at this point of time.