Expect CRR cut in June; not very hopeful on repo: BoB

In an interview to CNBC-TV18, SS Mundra, Chairman of Bank of Baroda spoke about the bank's business and his expectation from the Reserve Bank of India's upcoming June policy.

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Below is the verbatim transcript of Mundra's interview with CNBC-TV18.

Q: You have said that your new rate for all home loans is going to be 10.25 percent. How much is it lower by some of the tenures or can you take us through the details of this?

A: There were certain tenures where it was 10.25 percent, certain tenures it was more than that. It was up to even 50 basis points (bps). So, while in few cases it is already 10.25 percent and it will continue to be 10.25 percent but in other cases it will come down. However, significantly it will be across the amount, across the tenures and across the age of the customer whether the existing or the new one.

Q: What is the reason for lowering the rate and has your cost of money gone down?

A: There had been some softening in rate of interest particularly on the bulk side of deposit. As I also said that we feel that this a segment where we can grow the portfolio and where the recent history from the perspective of the charge or the capital cost or the credit cost, more rightly, is something which enables us to have a relook at the pricing. So, this the primary thought.

Q: Home loans comprise what percentage of your loans and how much do you want to aggressively increase it to?

A: Home loan as a percentage of entire domestic loan portfolio is 7 percent. I would at least be happy if in the remaining part of this year we can take it up to 10 percent.

Q: With inflation falling there is also a poor demand for loans from corporate and Reserve Bank of India (RBI) has cut rate several times, do you see deposit or lending rates fall even further in June?

A: As far as the deposit rates are concerned, as I did mention that on the bulk side of the deposits across the industry there is softening of the rate. I do not think any bank is offering the kind of rate which was being offered in the previous quarter and the bulk deposit. That is one point.

However, coming to retail deposit, while I agree that there is lowering of inflation but there are some floors, which are already there like a small saving rate. So, ultimately one has to remain related to that.

We are already in the June and to believing that by June end something major would get reflected, I will not be so optimistic. However, my feeling is that the trend is towards that softening and we will have the credit policy. As we enter into the next quarter I think there would be much greater clarity and it would also trigger some action in the industry.

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Q: What are you expecting in terms of June 17? Are you expecting a rate cut?

A: At this point of time this is a very dynamic world. The perception keeps on changing. As of today I am expecting some cash reserve ratio (CRR) cut but I am not very hopeful about a repo rate cut.

Q: The provisioning for restructured assets is now getting stricter. What do you think will be the increase on that account in this quarter for Bank of Baroda?

A: There is an incremental provisioning enhancement so in current quarter there would be additional impact. However, I do not think that will have a huge impact and then there is a transition period. Ultimately yes, with the transition period going forward this particular category is being phased out but the good point is that these were the writings on the wall and banking industry and Bank of Baroda in particular, where they were already in readiness about it, the whole monitoring and recovery efforts has been much more intensified and I would be more optimistic that if there is an improvement in growth rate and some of the policy actions which are being pronounced, as they come into the place probably the level of stress will come down in the economy. If level of stress is coming down there may not be a need for restructuring as it is needed today so then it levels out.

Q: Your non-performing loans (NPLs) rouse by 9 percent quarter on quarter in Q4, slippages were steady but restructured loans rouse by about 20 percent or so. On all these parameters how will this quarter look?

A: We have a quarter to quarter existence. I did mention this earlier also and I remember what I have told in past two quarters.

Let us look at it sequentially, quarter to quarter that is what happened in March '12 and March '13, we know much water has flown after that and we have been articulating it. Sequentially if compared to Q3, Q4 over Q3, domestic gross non-performing asset (NPA) has come down from 3.21 percent to 2.87 percent. In absolute terms also there is a reduction though it is a marginal reduction but there is a reduction across domestic NPA sequentially.

My Q4 gross NPA as a percentage has come down by 1 percentage point, globally 2.41 percent to 2.40 percent. Quantum has enhanced because I did explain that there were some call that we took on international book, which added to the figure, which I consider more as a one-off event. If I put together and right from the time I came to the bank and I announced Q3 results I had indicated that two-three quarters will see some stress continuing. Thereafter I would expect that there should be a continuous improvement and in Q4 itself there was a visible sign of improvement in the domestic book.

I still maintain that maybe for this and next quarter there would be more consistent situation as it was in the previous quarter and then we should be able to see a continuous improvement. That is what I perceive the situation as it stands today.