We are making decent progress in transformation journey: Bank of Baroda

Nothing much over there for us to be worried about, he further said.

Most parts of our assets are secured, we don’t have any corporate loans to any of these groups, so there isn’t any requirement for 100 percent provisioning, he believes.

“We are doing quite well. The transformation journey that we are in which is intended to make bank much more future ready and much more competitive, we are making decent progress on that and we may soon reach the point of inflection,” he further added.

Speaking about inorganic growth, he said “We need to keep looking for inorganic opportunity. We are looking at other inorganic opportunities outside the banking as well.”

Below is the verbatim transcript of the interview.

Anuj: Before we discuss your balance sheet and your loan growth issues, how much exposure do you have to the 12 accounts which have been referred to National Company Law Tribunal (NCLT) and what is your own sense of how things are going to move from here?

A: As far as the 12 accounts are concerned, we have an exposure of about Rs 7,200 crore. We are little higher than the 50 percent cumulative provision on these accounts. The fact is that in some accounts we have more than 50 percent but assuming nothing happens, which is no resolution happens and we follow the Reserve Bank of India (RBI) rules till March, we have probably from this point of time a 5-10 percent increase in the total amount of provision we need to take and it is factored in the various assumptions and calculations in the forecast and guidance we have given.

But even if one account or two of them gets resolved in some fashion that incremental provision may not be required besides, whatever the number I am talking about would any case be covered under the normal standard ageing provision. So nothing much over there for us to be worried about.

Surabhi: You mentioned that if you were to go up to 100 percent provisioning then it will be incremental perhaps 5-10 percent, will you anyway start building this buffer of 100 percent even before knowing which way the resolution process goes, in which case should we expect higher provisioning numbers?

A: The point is there is no requirement for the 100 percent provisioning. In case it is unsecured etc but most part of our assets are all secured and we don’t have any corporate loans to any of these groups. So I am just talking about the fact that if you have to keep a provision coverage of 50 percent on each of the assets in line with – because all of them are going to the NCLT -- then I would think that our coverage ratio is currently around 53 percent. Some accounts are more than 50, so we need to catch up on the balance and whatever requires to be provided for, would be pretty much in line with what it would be as per the provision that we would have to take during the course of the year.

Therefore, it is pretty much factored into our assumptions even before the RBI regulation. As a consequence, we are not fussed about this change.

Reema: This incremental provision if required a 5 percent to 10 percent that you are talking about would it be equally divided between the quarters and secondly with Bank of Baroda in anyway need to raise money or capital for the provisioning or perhaps even for loan growth?

A: As I see today, there isn’t any particular need for us to go for dilution in our shareholding. Though we have taken approvals from the shareholders but that is normal enabling provisions you have if there are opportunistic methods for raising money. So, as I see it now, notwithstanding all the changes, notwithstanding the new directions from RBI, it doesn’t affect that fundamental positions for us.

The other aspect that one has to consider which sometimes we miss out is the belief that every time we grow our assets, we necessarily have to raise capital. There is a lot of optimisation opportunities that are underway. Therefore, just as if you change from one house to another, you would always find certain things you didn’t want to be part of the stock in the house you have.

We also have loans which we would like to run off and so in an optimisation stance, we should still be quite okay. So all said and done, the requirement for capital doesn’t exist at this point of time to support either the provisioning requirement or the capital or the growth requirement.

Anuj: Going forward, how is FY18 looking like in terms of loan growth, in terms of your net interest income (NII) growth and also in terms of your margin growth?

A: We are just about two weeks away or maybe three weeks away from announcing our results. So I would just wait for that to happen but that is pretty much where I am. We can discuss it three weeks from today. These things will be tied up in the course of the next three-four days.

Surabhi: Another talking point on the street is consolidation within the PSU banking universe and all kinds of names have come up, permutations combinations, we have even heard theories about maybe a BoB and Punjab National Bank (PNB) marriage of some sorts, your thoughts?

A: Let me try to explain this from BoB perspective. The fact is that we are doing quite well as was evident, as was the fact of provision coverage, the asset growth etc but more important for us these are transformation journey that we are in which is intended to make this bank much more future ready and much more competitive. We are making decent progress on that and we may soon reach the point of inflection.

Now, some of our shareholders have said in this context, how are you thinking about inorganic growth and some have even said to me that you are not speaking much about it and overall the impression seems to be that any form of inorganic or consolidation is necessarily negative.

The point we have is that, we need to keep looking for inorganic opportunity. It is also a form of growth. It is episodic, so we cannot exactly decide when we want it and we can do it. Opportunities arise and we need to respond to that.

So long as we have a strong conviction that this is a good, right thing to do and the narrative with respect to that conviction is also credible and also certain other boxes are checked which is the technology compatibility, the cultural compatibility, the strategic strength and also that we can manage this without any further infusion of funding from the government and even in a broader extent any further dilution, I think that would make a good case for looking at consolidation.

It is very preliminary stage, we have discussing this, we have been looking at it, it is just that we have been looking at other inorganic opportunities outside the banking as well. So that is broadly where we are and we have to wait – these things will develop but specifically is that A company, B company, I don’t think so. It is difficult for me to talk about it.

However, I would say that what we have to look at it is essentially a strong conviction about the need for a particular inorganic growth and that we on a broad sense are well positioned to take advantage should conditions that we mentioned of the type of bank we need to, comes along the way.

Anuj: One thought process is that the merger should be like Bank of Baroda taking over the western region banks, PNB may be taking over the northern region banks. There is a counter argument which is emerging that what if we have a bit of a drought in one area or something like that, in that case the entire region gets impacted. Do you think it is the right way of looking at things in terms of creating regional based large behemoths?

A: You can keep arguing on both sides of the table and sound equally convincing. So I don’t think that answers the question.

To us what matters are a few other softer aspects as well. What about cultural compatibility between the two organisations? What about systems technology and integration for example? How does it help the in diversifying the portfolio to make it bit more all-rounder and less concentrated? These are also other factors that we need to consider, merely the north-south, east-west kind of an argument.

I think these softer aspects probably may weigh in more in the scheme of things.

Reema: You said that you would look at inorganic opportunities even outside the banking sector, what do you mean by that?

A: We had a look at a few of them. We are looking at areas like cash management, custody, we even looked at whether we can work in a form with MFI. So these things keep coming up, deals do come up, you look at them and then see how they work for you but every one of these transaction for us are an opportunity to learn of a different business model and then start thinking about how that could impact us and in what way we could make use of that knowledge for the development.

Surabhi: How much absolute total independence does the bank and board enjoyed. I am sure there are consultations with the finance ministry as well in terms of zeroing in on the kind of assets that you are comfortable with because there is talk that should you merge with a couple of weak banks and create one bank or should you merge the stronger lenders with the weaker lenders, what is the kind of format that you are okay with?

A: I have already explained the format that we would like for Bank of Baroda on a broader systemic basis, you question that you asked, is it willing, unwiling etc, it is for individual banks to consider those questions.

For us I am saying that overall we need to have system, cultural aspect, market strength, the ability to manage the consolidate book from a capital adequacy another perspective, all of these things are also important.

So we have to weigh it across several parameters and then we must more than anything else be convinced it is a good and right thing to do and that conviction story ought to be very credible. These are the factors that has to be considered as we think about consolidation.