Looking to raise funds via QIP or rights issue in Q3FY18: Bank of Baroda

Issues with regards to new loans possibly becoming non-performing assets (NPAs) are lower.

On business front, he said loan growth of 13.8 percent in the domestic business is sustainable.

We have exposure to accounts worth Rs 4,500 crore under second National Company Law Tribunal (NCLT) list.

Incremental provision for second list is around Rs 1,100-1,200 crore, he added.

According to him, steel sector backed by running assets will hopefully see a turnaround.

Below is the transcript of the interview.

Latha: You all are sitting in a pretty comfortable spot - asset quality has improved rather dramatically and the environment for raising money has improved, so we see you taking advantage of it?

A: Yes, we are working through the details and certainly we would raise a QIP or a rights issue sometime over the course of this quarter. However we are not really hard pressed in that sense, it is just that timing is good and if we can get all the approvals then we will take a shot at it.

Anuj: The big fear that a lot of people have is that once PSU banks are recapitalised, most of them will again make the same mistake and once again get into NPA trouble. Do you think that assumption is fair?

A: I hope not. I don't think so. There are two reasons why I would say so, one is that, you look at bulk of the challenges which we have with respect to the infrastructure projects, the very nature of tendering and contracting these projects has changed, land is being acquired, financial closure is getting done, so hopefully that makes a change.

It is actually a combination of various things, it is not just one thing that went wrong, it is not purely judgemental error on the part of banks, there were economic reasons, there were project delays, there were a bunch of things and all of those issues seem to be getting addressed right now. So, collective impact of these changes is what is going to make the new sets of loans more efficient.

Surabhi: Back to the point on capital raising, considering that the NPA situation is really stabilising within the bank, loan growth as we saw in the second quarter is now beginning to pick up, it is at a multi-quarter high, how much capital do you need? How much do you think you would want the government to give you through those recap bonds? You mentioned a QIP yourself, how much do you think you are looking to raise, some ballpark numbers if you could share with us?

A: We are working through the details but on a standalone basis we probably at the current market price would raise about Rs 6500 crore by way of equity. Now the component of funding from the government which is on the anvil would obviously help us to increase the total amount of capital raised but we have to see it in the context of our own growth, we have got to see it in the context of the changes that might come under the Ind-AS accounting. So, we are still working through the details. There is still some more information required particularly on the changes in the Ind-AS accounting and whether that together with where we are would require more capital than what we had otherwise envisaged for business growth.

Latha: It was fairly sharp loan growth that you reported, nearly 14 percent. Is that sustainable?

A: I would think so. It is coming on the back of strong retail growth. We have put a lot of effort to get our collection machinery and infrastructure in place, most of it is done now and it is reasonable to expect that growth will continue.

Surabhi: Since you mentioned Ind-AS, I was speaking to one of the consultants who was sighting a European example that when they moved to those standards the provisioning requirement went up by 35-40 percent in some cases. Are there any back of the envelope calculations already because I think April 1 2018 is when you move to the new norms, so what could be the higher provisioning requirements?

A: There are lot of moving parts over here, there is also the whole aspect of marking to market a number of assets, I am still not through with it entirely, we are trying rework our calculations with respect to probability of default and all of that kind of stuff. Also if we can reduce the SMA levels, then requirement for provisioning changes. So, there are a lot of things under work. I really can't say a number but something like Rs 2000-4000 crore may be required. The details are still being worked out so it is kind of premature at this point of time to give a number to you.

Latha: RBI's norms on Ind-AS are still in the draft stage. Going by that, assuming that they will be the final guidelines, if you can tell us something by way of credit cost in terms of basis points, that will help us understand better? Would you set aside 75 basis points more as credit cost, 100 basis points more as credit cost?

A: Lot of things are moving around, I am waiting for data with respect to how the NCLT will go, what kind of recoveries will come, kind of challenges we may have on the telecom sector, so there are both positive and negative news around over here. I would wait for some period of time but my own guess is that, we should be able to stay comfortable both with and without changes in the Ind-AS accounting.

Anuj: You said loan growth of 14 percent thereabouts is sustainable, won't you have slightly more aggressive targets and now the sense is that PSU banks would be in better position to take back some market share as well from NBFCs. So, would you be looking at slightly aggressive target in terms of loan growth?

A: I just want to make sure that while doing all of these things, we continue to do what is appropriate, which is build strong customer relationship and we simply don't go chasing assets. So, at this point of time we are rolling out a number of programmes - supply chain, cash management, making our trade desk more efficient, more focus on better credit worthy customers, much more combined offer between retail, corporate, SME and all of that stuff with the corporate customers and other segments. So, our objective over here is primarily to do the right thing and build the business in a right way and build profitable long term relationship instead of just being focused on topline growth.

Latha: Have you estimated how much you have to provide for the second list of NCLT cases as well, by December they have to be taken to the NCLT? How much is your exposure?

A: We have about Rs 4500 crore of potential NPAs, all of these accounts go to the NCLT. Incremental provision between the first list or what is left on the first list and what is required on the second list is probably in the Rs 1100-1200 crore level. I must mention to you here that our coverage starting point itself is high. We are around 54 percent coverage on the sum total of the loan, so this would take our coverage upto 64-65 percent.

Watch accompanying video for more details.