BoB to keep Rs 120cr for provisioning restructured assets

The Reserve Bank of India raised the provisioning on restructured assets to 2.75 percent from 2 percent earlier. The central bank also cut cash reserve ratio (CRR) by 25 basis points to 4.25 percent. RK Bakshi, ED of Bank of Baroda said their total restructured assets at the moment is around Rs 16000 crore and according to the new rules, they have to set aside Rs 120 crore.

The CRR relief will provide the bank around Rs 700 crore, informed Bakshi. He further added that a lot of easing has taken place on the retail side and NPLs and restructured accounts have been better. Here is the edited transcript of the interview on CNBC-TV18. Q: What is Bank of Baroda's aggregate restructured assets and therefore, how much will you have to set aside?
A: Our restructured assets are in the region of around Rs 16000 crore. So our additional setting aside will be around Rs 120 crore. Q: And how much money would you have made because of the CRR cut, will that match this Rs 120 crore payout?
A: It will be almost half of that. But, if you have to provide Rs 120 crore for one time and CRR is for full year. However, we have less than half a year left. Q: What is the CRR relief that you are getting?
A: That will be around Rs 700 crore. Q: Is there any room for cut in your actual lending rates given what the RBI has done? Everyone’s pointing out that CRR now is at a decade low and we have had significant cuts. Do you think there is a possibility that we could have atleast a 50 basis points cut in the actual lending rates in the next three to five months?
A: The actual lending rate comprises of two components, one is the base rate and the other is the spread. There are various segments which are requirements. The retail section is already seeing quite a lot of competitive easing or that was the sector which was having some credit growth. There has been a lot of competitive easing.
The major cost in bankers' books is the cost on deposits and that floor is determined by a number of factors including inflation, including competitive pricing by government saving schemes, provident fund schemes and the need that suddenly you should not become too tight on liquidity. The banks have tried to reduce the rates of interest on deposits a little bit but I must say that on the retail side, on the asset side, reductions have been even more than what has been reduced on deposits.
_PAGEBREAK_ Q: You are implying that till deposit rates don't come down because of other factors like what the small savings accounts are offering or because of inflation, there is little scope for a BPLR?
A: There is less scope for that but I will again emphasis the point that a lot of easing has already been done on the retail asset side and on the corporate side. As it is, demand is low and corporates are able to negotiate and get finer spreads over the base rate. Q: The one sector that doesn’t benefit from either of the points that you are mentioning is the MSME sector, there was one banker who quoted chapter inverse (chk) to point out that companies under Rs 50 crore turnover usually see a lot of stress from interest rates because interest cost is very high for this sector. Do you expect selective benefits for this sector at all? Apparently that came up yesterday even in the governors meeting with bankers?
A: Yes MSME as a segment which generally is not the beneficiary on a collective basis of those rebates because corporates are able to negotiate and retail has a lobby now. But I think the bankers point about Rs 50 crore turnover suffering the most did not come from the fact alone that high rates are charged to them. But, it might have also come from the fact that their dependence on bank credit is much higher and their own equity is generally lower.
Therefore, their negotiating capacity as well as sustaining capacities for rates is that much weaker. That was the point being made by the particular banker but, SME in general have seen tremendous growth and I must tell you that there are SMEs in clusters in various places which are doing well and those SMEs are good and rated well they are able to get finer pricing. Q: How are you expecting your restructured and NPL accounts for the next two quarters at Bank of Baroda itself?
A: Our NPLs and restructured accounts have been better. But, I think this drought of bad economic conditions has continued for longer than anybody expected and that is resulting in a lot of things. Apart from certain other factors like clearances for projects are still not coming. We have seen in several places that gas is not available for a project that is ready or environmental clearance is not given for a project that is ready.
Coal and iron ore has also become an issue. Though, the government has now made very positive statements and positive noises including the setting up of a national investment board and things like that, it creates a tremendous amount of optimism. How soon and how we can see action on the ground will make all the difference. As far as our bank is concerned, I think we have had 0.91 percent of standard advances as slippage in the first half year and I think we should be slightly lower than that in the second half year.