Won't cut rates now; asset quality remains stressed: BoB

MD Mallya, chairman and managing director, Bank of Baroda told CNBC-TV18 despite peer State Bank of India (SBI) slashing home and auto rates, BoB is not considering a rate cut at this point of time.  

"The rates which we are offering on our housing and vehicle loans are competitive compared to what the market and competition has been offering. Therefore at this point in time there is no immediate reason for us to relook at the rates," he elaborated.

However, the public sector lender may opt for realigning rates going forward depending on market conditions and its appetite to increase portfolio, he added.

Given the bleak macro economic environment, Mallya pointed out that BoB's asset quality is under stress.

"When the overall macro economic conditions are the way they are, it is natural that there could be little bit of a stress in terms of asset quality and may result in slight increase in overall delinquencies and NPAs," he explained.

Below is the edited transcript of Mallya’s interview with CNBC-TV18

Q: It was interesting that you raised deposit prices a few days ago. Does that clearly say that base rate cuts are not anywhere in the offering? We know that the repo rate cut is looking increasingly difficult with the inflation picture. Banks like you are hiking deposit rates at this point. Does that completely eliminate the possibility of a base rate cut in the next two or three quarters?

A: I wouldn’t say that. We have realigned the deposit rates at different maturities with what the market has been offering. If you therefore look at the maximum rate of interest that we are offering on the deposits at 9.25% is in line with maximum that’s being offered by others or maybe somebody else has been offering more than that. It is more in terms of realigning the rates, keeping in mind the market conditions and the competition rather than anything else.

Q: SBI has recently cut home loans as well as auto loan rates a bit. What would the approach of BOB be as of now in the absence of any RBI action or till we get anything by way of an RBI action? Will BOB go ahead and cut lending rates at least in a few key segments like home loans or perhaps even auto loans?

A: The rates which we are offering on our housing and vehicle loans are competitive compared to what the market and competition has been offering. Therefore at this point in time there is no immediate reason for us to relook at the rates.

But then as we move forward depending on market conditions and depending on our own appetite to increase portfolio, one would look at realigning the rates. But not immediately, I don’t think anything is in the offing in changing the rates.

Q: If the RBI continues to stay put and doesn’t change or tinker around with key rates, do you think there is room for banks to get slightly aggressive to improve credit and cut lending rates or lending rates will remain a function of what the RBI does and hence it will largely be an RBI call?

A: Basically it will be aligned to what the RBI has been doing. But then there are other conditions also which one needs to look at. One is credit demand and credit pickup and number two is our own overall funds requirements in the various buckets. Therefore both deposits and lending are also governed by these requirements.

But then normally as we have seen in the past, towards the end of the second quarter, may be in the month of September with festive season kicking in, normally the credit demand picks up what we used to call is the busy season coming in.

Therefore once that starts, one needs to look at whether the overall demand for credit will pick up both on retail and other segments. If that would happen, perhaps one has to relook at the overall strategies. But at this point in time immediately if I look at it, stability would continue in this front.

Q: It appears that India is facing a stagflation type scenario. The growth has come down to sub-6%. Inflation is stubbornly high above that just except this minor blip in July. What happens to the asset quality? In this quarter we have seen asset quality pressures in most banks including yours. Does the asset quality picture worsen at least in FY13 from what we have seen already in Q4 and Q1?

A: When the overall macro economic conditions are the way they are, it is natural that there could be little bit of a stress in terms of asset quality and may result in slight increase in overall delinquencies and NPAs. Going forward whether we have to estimate further increases in NPA is very difficult to tell now even though the pain points could continue.

As far as our bank is concerned, we have been relatively insulated from large delinquencies or large restructuring in the recent past. It would be feasible for us to reach the guidance given as we go forward in the current fiscal 12-13.

_PAGEBREAK_

Q: Your larger peer State Bank guided to analysts before releasing in the numbers of slippages just about Rs 5,500 crore. We saw a surprise figure double the amount that was predicted by the management themselves. Could there be a surprise element given the kind of agri situation we are facing right now? Do you think that asset quality could surprise significantly on the downside? While public banks have been particularly facing things on the agri and SME front, private sector banks have been much better in terms of maintaining their asset quality issues. Are you taking any measures over the medium-term to try and restrict your slippages particularly in SME and agri segment?

A: As far as that is concerned, all the banks would be proactive to ensure that the credit monitoring mechanism that is put in place is intensified in terms of closer monitoring of the accounts both in the retail, SME and the larger corporate segments.

All of us have been doing it and I say that we would continue to do that. For the industry as a whole what would be the outlook. It is difficult for me to make a prediction. I would only give guidance as far as Bank of Baroda is concerned. But then it is but natural, that when the economy has decelerated the impact and the stress on the asset quality front could be slightly more than in the normal times.

As far as the overall scenario is concerned, the action that both RBI and the government have been taking should ease out the overall pressures on the economy and the inflation. As we move forward there is always a lag effect. Therefore one needs to wait for sometime before we can see the positive results of these actions which they have been taking.

Q: Upgrades and recoveries so far by most of the PSU banks have been fairly strong or even positive. But with the economic slowdown that India seems to be facing do you foresee a slowdown in upgrades and recoveries which will make the net NPL picture look a little more stressed than what it used to because upgrades and recoveries are now looking increasingly difficult?

A: No I don’t think so. If you look at the performances of major banks in the first quarter in terms of recovery and upgradation, it has been fairly decent despite the fact that overall economic conditions have been slightly negative.

If you go by that with intensified efforts I would still say that the overall picture in terms of recovery and upgrades should be reasonably good for the rest of the current financial year.

I wouldn’t still say that it is too difficult a condition to overcome. Banks have the agility to move strongly and perform reasonably well in difficult conditions.

Q: Last time around in Q1 you all maintained your Current Account, Savings Account (CASA), but there is a concern there that your clients are slightly urban centric so they have this constant habit of shifting CASA to term deposits. Are you confident of being able to maintain your CASA?

A: I would like to rather say that our overall network is not urban centric. Fifty eight percent 58% of our banks network is from the semi urban and the rural centers that mix continues. The CASA accretion across the entire network whether it is metro or urban, semi urban and rural have been fairly decent.

That type of a growth I would still expect it to happen with all sorts of initiatives we have taken in increasing our CASA. Therefore growth has been stable. Given the circumstances it is fairly decent as far as BOB is concerned.

Q: Do you think RBI will cut rates in this calendar year?

A: Difficult for me to predict.