RBI's new norms to push CAR to 13.25%: BoB

The Reserve Bank’s new amendments on balance sheet items will help in improving CET I by 1.1 percent, says PS Jayakumar, MD & CEO of Bank of Baroda. The move will further help in improving Capital Adequacy Ratio (CAR) to 13.25 percent, he adds. CAR is the ratio of bank’s capital to its risk.As per the new amendments by RBI, banks will be allowed to recognize part of their real estate assets, foreign currency assets and deferred tax assets as capital with suitable hair cuts. The move, Jayakumar says, will also give more headroom to work on non-performing asset problems. While the credit growth might not be very robust in coming quarters, there will be improvement in asset quality, he adds. The steel and sugar sectors are doing better now, Jayakumar adds. Below is the transcript of PS Jayakumar’s interview with Latha Venkatesh on CNBC-TV18.Q: It is unfair to ambush you on the way before you go to your conference. But, there is this overnight good news in terms of revaluation of real estate and foreign currency and you guys must be advantaged because you have a large number of branches abroad. So, how much do you make capital-wise?A: We have been asking and so have other banks for some changes and it is a pleasant surprise. On an overall basis, our CET-I goes up by as much as 1.1 percent and because some of the moment is from Tier-I to CET-I, our net impact is about 1.07. That takes our capital adequacy to something close to 13.25. So, it is pretty good for us and this is something we had anticipated, but this is a pleasant surprise today. And that keeps us in line with what we discussed before that. The requirement for capital for Bank of Baroda from the central government should not exist in the context of what we anticipated and in the context of changes that have been made.Q: No, since you are moving some of your Tier-II capital to Tier-I, in the case of foreign capital and real estate, your Tier-II also gets freed up. That means a little more ability to borrow Tier-II capital.A: No, what I meant is the overall number still does not change. It is around 13.25 as we discussed. But a lot of people measure on what is happening on CET-I and that goes now, to as much as north of 10 percent. So, that is a good position to be in. And we are hoping with some more optimisation, we should take that up by the end of this year to may be close to 13.5 percent from a capital adequacy ratio basis. So, let us see how that plays out.Q: What will this mean in terms of ease of doing business, to borrow the Prime Minister’s phrase? Does it mean you will be able to find those credits which you always wanted to lend to? A: The more important thing is that there is headroom to work on the non-performing asset problem. That really is what I would look at. Q: But, you worked it all out?A: We do, but there is always stresses in the balance sheet and you know how it may not flow through. We have created multiple scenarios and in all scenarios, we come out quite okay on the capital adequacy perspective and the lack of need for additional infusement. But that said, it certainly is very helpful, is one. The second, as far as we are concerned, as I discussed last, we are kind of overweight on the triple BBB+ and BBB assets and for us, we need to go a little bit higher on the credit rating in order to rebalance the portfolio. So, this change by itself, gives us the ability to add more to the balance sheet to the same amount of the capital. That is where it is.Q: Are you saying that you will be able to, you have now the capacity to recognise some of the borderline stress cases in Q4?A: I am saying that it is very difficult to predict a multiple ways scenarios could fold out. Let us say, a more adverse circumstance than what we imagine, what we have planned for, then obviously, that gives us a certain amount of leeway around the whole thing.Q: When you last spoke to your chieftains, your branch managers, the auto sales numbers for February were good. Globally, the metals appear to have troughed out. We actually saw the metal producing countries like Brazil and all perform year-to-date. They are in the green year-to-date. We are all in the red. So, are you genuinely seeing that people who were stressed are now saying that they are not stressed?A: I think the steel sector seems to be feeling much better, though the effect of the excise duty changes would take a month or two months to take effect. That clearly is there. Sugar sector is feeling quite comfortable. There has been a significant change around over there. The rest of the stuff if, as the government continues to say that they will address this issue on a lot of things around road, power and other kinds of projects, if those facilitations happens, obviously projects get completed, cash flows start coming in. So, we are hoping some of those things will happen faster. That really is what it is.Q: Let me hark back to the revaluations of reserves. Can you give the detailed numbers? I know they are technical but there are a lot of investors who will like to hear those numbers. How much do you get in foreign currency?A: On the foreign currency side is roughly Rs 1,900 crore because it works out of the disclosed balance sheet. It works out of the gain as of March 31, 2015. So, there has been still further appreciation from March 31 till now. So, those will come to us as a benefit in the following year. This is that substantial part of the overall number. The other thing is the deferred tax. That gives us a certain pick up and finally, the revaluation. That is a big number for us. It is probably of the order of Rs 1,800-2,000 crore. We had completed the revaluation reserves. We have not passed the financial entries and we shall be doing it in this quarter. So, all put together should give us a reasonably nice lift between where we are today and what it will end the year with.Q: In the month of February, we saw too much tightness in the money markets, in part because of state government and central government borrowing not getting spent, in part because of a lot of demand, the commercial paper (CP) yields going very high. Has that tightness eased? People were telling us that banks were not giving loans to micro, small and medium enterprises (MSME), and so they are kind of high and dry, no CP, no bank.A: I think some of the reason might have been to do with the focus on the collections. But, broadly, a lot of customers, especially, high rated customers were not interested in the transaction because the rates had moved up. They were also waiting for rate stabilisation. Now, with the reversal happening, many of those transactions can get closed during this month. So, I see a lot of higher quality names who were not willing to do the transaction, because the rates had spiked up and they did not think that it was a fair rate, those transactions would come in more. This is my guess.Q: So, you may end the year with what kind of credit growth do you think?A: I think for this year as well as for the following year, I am not sure. The rate of credit growth will not be so robust, but what is happening is the change in the quality of the assets. We are running down consciously certain types of assets and growing certain other types of assets. So, on the balance there is growth of the growth portfolio, but our legacy portfolio is drawing us down. So, end of the year, we expect it to be at the same level as last year.