Base rate cut not on agenda: BoB

State-owned Bank of Baroda (BoB) confirmed that a base rate cut was not on its agenda. The bank, on Monday, had announced a 0.25% reduction in home loan rates across all categories for both new as well as existing customers, in line with its state-run peers.

Speaking to CNBC-TV18, executive director of the bank RK Bakshi said deposit rates have softened due to excess liquidity, most of which can be seen in the bulk segment. He refuted claims that management change could be a cause for concern and said slippages can improve from here on.

Below is the edited transcript of his interview with CNBC-TV18's Reema Tendulkar and Gautam Broker.

Q: You recently cut your home loan rates. That is in line with some of the bigger peers like SBI. Is there any thought on the base rate as well? Do you think the Asset-Liability Committee (ALCO) is mulling any kind of reduction, even a minor 25 basis points?

A: As of now, I really don’t think that a cut in base rate is actively on our agenda. Home loans have been cut because the rates are decided based on several factors—principal amount, cost of funds, the scenario pushed required in a particular segment because of demand and competition.

I don’t think a base rate cut is on our agenda as of now because some of the other factors have not really undergone a change. But the deposit prices are now showing some signs of slackening, particularly in the bulk segment because there is tremendous amount of liquidity un-deployed with most of the banks. That may create a situation where everything may be reviewed. But not immediately, position is dynamically reviewed.

Q: Since this move has also been followed up by other PSU bank, the competition effectively remains the same. Is there a case for further reduction in deposit rates? When we spoke to the management of State Bank of India, they indicated that deposits have picked up to such an extent and there has not been a commensurate outflow for credit as well. Is there a case for further reduction of deposit rates, either for home loan or for even other retail sector?

A: Deposit rates, in the bulk segment, have been seeing some softening because of the excess liquidity with all the players. Is there a scope for cutting rates further? I would not stick out my neck and say that because the rates, at the moment, are close to the base rate. Infact our home loan rate range is between 10.5-10.75%. 10.5% is our base rate. So, we cannot go lower than that.

Every bank is coming down to the same rate. So, competition effectively comes back to the same level. However, the competition should also factor in to the ease of taking loans and convenience afforded by a particular bank and the other factors of the scheme. But lowering of the rates, even if they are equal across banks, it still means that the loans become more attractive to the home loan buyers.

Reducing too much, when the other rates are not trending down to that extent, to my mind, will not be correct. I don’t think there is much scope for lowering these rates anymore.

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Q: How is the asset quality holding up? Off-late you have some concerns on private banks. Some of the accounts coming out of the closet like Deccan Chronicle. We also had some concerns on Abhijeet Group. Are you seeing this incremental request for restructuring bigger groups getting into trouble or has that sort of abated and now things may be on the verge of stabilising?

A: A fewer bigger groups, who have hit the restructuring roadmap or who have being classified NPAs, have caused a lot of negativity in the market. A lot of them perhaps definitely do not have to do with the condition of the economy.

In certain cases, whenever you plan a project, you are definitely looking at a demand scenario. Project is going to kick off a few years down the line. If the economic scenario that you projected does not work out accordingly, there is bound to be pressure on servicing, despite best of the intentions and best of the project planning done by the corporate. That can definitely happen. Some of the structural issues, which have come out, are particularly relating to some infrastructure players and other things.

For example, if the environmental clearance gets overly delayed and there is a two year delay in the project, the delay in revenue accretion is bound to be a strangle hold for the project. Some of the things are not because of the economy. Some of them are because of the economy and because of the policy slackening.

I would like to believe that a number of players are still quite strong. They have good capital and good strength to manage their affairs internally. Some of them are looking at innovative options also. I would like to say that you can never say it is the end of the road for the NPAs or restructuring. But, yes, it should abate from here.

Q: The slippages for the bank have been high for the past three quarters. In the first one-and-a-half month of the quarter, how have the slippages been?

A: We hope that it should be better than the last three quarters. When somebody is planning, you are depending on a number of things happening. In many cases, it is ultimately a technicality whether there is overdue of more than three months or not. Sometimes the borrower is also hoping for certain payments to accrue.

For example, somebody is waiting for payments to come from discoms or somebody is waiting for payments to come from some export bills or certain other cash flows to come in. So, technically if 90 days go pass, it may become an NPA. But we are looking at a better picture, as of now.

Q: The street is concerned that we have a management change in the offing. We have seen this many a times in public sector banks that in the chairman transitions, there is some kind of a bigger write down. In terms of Bank of Baroda’s book, do you expect any kind of that thing happening going into the year-end or has most of it already being factored in and investor should not brace themselves for a bigger write down?

A: It is not correct for me to comment on that. We have not seen too many examples of that. One example should not crowd the judgment that it is a practice in the industry. It has happened once, if I know it correctly. That has been quoted as a reason for suspecting tremendously bad outcome on the change of management. That necessarily is not the case. It is not borne out by most of the changes.

The only bad thing is that the economy itself has not been doing too well. So, there will be incremental. In the last three quarters, our NPL slippages have still been better than the industry, but they have not been as per our own liking. Other than that, I don’t think the management change per se should be a cause for concern.