Expect loan growth momentum to continue; have no exposure in Nirav Modi case: BoB

According to him, India is moving to high economic growth, getting into goods and services tax (GST).

Bank of Baroda has Rs 9,000 crore of SDR and S4A, said Jayakumar.

If the NPA numbers are higher because of the revised accounting policy, we would still remain comfortable with respect to our capital adequacy and our net NPA number and our coverage ratio. We would see a much better result next year, he further mentioned.

On NPA front, he said that he expects some pick up in gross and net NPA figures.

I have zero exposure to Nirav Modi’s case, Jayakumar added.

He also expects the loan growth momentum to continue, he said.

Below is the verbatim transcript of the interview.

Latha: With the new circular coming in, will all SDR, S4A cases be recognised this quarter or next? In your case, what is that amount?

A: For the last probably a month, we have been seeing a lot of grabbing media headlines on a discussion around public sector bank in particular and obviously it has driven by the high level of NPA and a localised fraud that is happening in one of India’s premium bank. This has created both, negativity and a fair amount of anxiety among number of stakeholders.

My response to that primarily is this, public sector banks still continue to have very significant market share in the banking industry, more than 65 percent, most of the public sector banks including Bank of Baroda have over 100 years of history and continue to command customer royalty. We have also contributed significantly or disproportionately to the financial development, the social sector development in this country, just about any project of any significance in the infrastructure has all been funded by the public sector banking or have a very significant share of the financing.

Now, due to variety of factors, we have this NPA problem but there are also number of good structural changes happening. The government process itself has improved or reduced substantially the risk in the infrastructure projects, board governance has substantially increased, there is a build-up in the capital both on account of infusion and QIP, the reform processes that have been set would significantly improve the quality of services of the banks. We are also moving to high economic growth, we are getting into GST and large amount of data that enabled us to underwrite better. So given all of these things, I don’t see the need for the significant – the pessimism, I just think we have to be clinical about the issues we have, address the structural issues and then move forward with the continued focused on growth. That is where at least I am from Bank of Baroda on that side.

So I would say let us reduce this negativity and pessimism, problems are there, they will get addressed and we are in an economy that is on a significant rebound and there are a lot of positive factors that should enable us to continue to focus on growth. That broadly is the opening comment.

Latha: Yesterday we had yet another market veteran saying much the same thing that this is a localised fraud in one branch and LoUs and LCs are given all over the place for 75-100 years and it is just one localised branch. The other structural thing which the RBI has done is what perhaps looks like an AQR too which is good. It is probably the last bit of poison. I just want to put some numbers to it, I have a Credit Suisse report, which says that your specific NPA could go up from 11.3 percent to probably 16 percent because they are taking the entire SDR, S4A cases, what is your own assessment?

A: I think we have – as disclosed - about Rs 9,000 crore of SDR and S4A. I hope – I don’t think all of them will flow in. We can assume a majority will flow, that doesn’t matter.

The changes in the accounting circulars, accounting policies does not affect finally the net NPA is going to suffer. All it does is to change either bring forward or postpone the recognition norms. So if in this quarter, we do have a very high level of provision, the next year is going to be very solid. So at the end of the day, it is the same thing. We are not unduly concerned about it. These are the policies, we plan for it, prepare for it and move on but I think that the next year we should expect a 12-15 percent return on equity (RoE) on an enhanced capital at least from the Bank of Baroda side.

Sonia: We were just speaking with Bank of India (BoI) a while back. He was telling us about how they have made Rs 7,000 crore of recoveries already and they plan to see about Rs 2,000-3,000 crore more of recoveries over the next couple of months – I wanted to know on Bank of Baroda’s end, what would the recoveries look like currently and how much more can we expect?

A: I don’t want to get into a specific number because the results are due at the end of this month but broadly I would say to you this way that if the NPA numbers are higher because of the revised accounting policy, we would still remain comfortable with respect to our capital adequacy and our net NPA numbers and our coverage ratio and we would see a much better result next year.

So I just want to look at it in some kind of a front-ending which has happened to us twice before in terms of bringing the losses forward.

Sonia: I want to also come back to that point that Latha Venktaesh was making about the NPAs. You spoke about Bank of Baroda in particular but for the industry as a whole because of the new norms, on an average how much do you think the NPAs could go up by. Currently, as of December we are sitting at Rs 8.5 to 9 lakh crore of NPAs for the system as a whole, how much do you think it could rise to?

A: I will not be able to comment on this, I have not looked at all other banks that are there. I would only think about BoB and say to you that there would be some pick up in the net NPA number and the gross NPA number. Some of which will be offset because of the growth but we will still be within the zone of comfort.

Latha: Is there any renewed zest for recovery?

A: I would say the risk to the recovery is in two parts. Part one is some of the NCLT issues don’t get settled in the timeframe we expect them to which is the second quarter of next year and maybe something towards the end of this month. So that could get potentially delayed but I don’t see that extending for too long.

Latha: I mean positively, what was the zeal? Are you going after recovery with greater zeal?

A: I think so. I think the positivity – first and foremost that the steel and the cement sector recoveries seems to suggest that we will have a reversal of provision. That is a positive thing and then it obviously provides us the headroom to provide for any additional slippage that is concerned.

Second, I see there is a greater degree of focus and energy around collection both with respect to small and big tickets and as this intense pressure keeps on, collection will happen and finally the attitude is somewhat changing because when people realise that eventually, collections would happen and their assets would be repossessed then there is a tendency to come forward and come to a resolution table. So all in all, I think these are positive steps but on the other hand, we have to be execution focused and get the benefit out of it.

Latha: Just one small niggling issue, how much does Punjab National Bank (PNB) owe you on the Nirav Modi issue and have they agreed to pay with riders?

A: I have zero exposure. So I am not in conversation with them on recovery or recollection, we don’t have any exposure.

Latha: Would you have capital left for growth, what would your approximate target be for loan growth for this year and next?

A: We are staying with the guidance. 12-15 percent is what we have been talking about quarter after quarter and that is the number that we are seeing on a quarter-to-quarter basis. Even last quarter we had some 14.44 or thereabouts. So, I would expect that – unless there are some unforeseen circumstances in the next 20 days, I would expect that to continue with the growth momentum. Next year, I would think we can expect a little bit higher number because our distribution with respect to retail would further pick up the volume and I would think there is an opportunity for corporate growth coming from the rebound of growth. So overall, I think we are pretty sanguine about next year.