We hope to have our ATMs recalibrated by Nov 24-25: BoB

Slippages declined this quarter for the bank, and he said the guidance of Rs 45,000-50,000 crore of GNPA by FY17 remains the same.Below is the transcript of PS Jayakumar’s interview to Anuj Singhal, Sonia Shenoy and Latha Venkatesh.

Latha: First up, how do you see the bank’s numbers at the end of this quarter? Are you expecting that the cost of funds will go down substantially? If yes, by how much? How much have you garnered by way of deposits?

A: As of yesterday, we are about 14 percent up on our total current and savings account (CASA) deposits and it is fairly consistent with our market share. So, that is positive.

However, the point that we are looking at from demonetisation perspective, a lot of things have been said about this impact on the economy, etc. is really reflecting upon consumer behaviour and how that would change. The early indicators for us are that the sharp increase in the debit card usages and yesterday, it was 2.2 times of our peak ATM usage. So, that is quite positive and so we are trying to use this opportunity to build our railroads and payment structure very aggressively between now and December end and try to have a catch upon the share of the payment business as well. So, long-term impact in terms of more use of electronic payment would be a significant positive that should play out after the demonetisation.

Sonia: But what about the negatives, because cash flows have stalled across the country. Do you think that would lead to a pickup in defaults and are we staring at higher non-performing loans (NPL) formation for banks, especially from some of the rural segments, maybe even a slowdown in retail growth?

A: Let me put it to you this way that it is too early to take these calls, but we are now moving a little bit more rapidly to restoration of normalcy. The ATMs are being tested. We have about 200 ATMs now live with Rs 2,000 note that was as 1 pm. last night. The banks now, the task force of the Deputy Governor is now rolling out a common plan for calibration of these ATMs. So, we should see that come up. The currencies are also coming along. So, you have to give it a little bit of time, but one should look at it a little positive in terms of the situation addressing itself out. So, we have to see that, but the other thing is that as far as we can see it from our limited vantage point of view, our sliver of share to some of the segments that are expected to be under stress is so small that it really is not something that is concerning us. We will wait and watch. It is kind of uncharted territory, if you will.

Anuj: Ultimately, banks are in the business of lending and that is how you make money. Do you see severe impact on credit growth because that is something that a lot of people are telling us that over the next three-four months, you will expect damage on credit.

A: Again yes, there could be some change, but again, it is too early to make these calls. I do not really have a pulse of how that is going to play out and I would be candid on that fact. But the doomsday should be avoided. I do not think that is going to be there and even if there is going to be some kind of a negative outcome, we are hoping that the corrections also happen quickly because money supply would get restored as well. So long as our fundamental structure of the business is solid, interim disruptions should not really result in the change of any attitude of banks towards credit. And frankly, if there were situations where we need to support with additional credit to get over this hump, we would do that.

Latha: You spoke about Mr Mundra’s team recalibrating ATMs. What is your best guess of normalcy to all your ATMs? When do you suspect they will start functioning? Should we give it November 30?

A: There are two aspects to it. One aspect is a physical aspect of the recalibration of the ATMs. We are looking at November 24-26 to close the recalibration effort. That is our internal target. Now with the fast forwarding and of the recalibration by a common roll out, those dates should be achievable. The second aspect relates to the availability of currency; ATMs are running but where is the currency. But there again, with the Rs 500 notes now coming along and the Rs 2,000 supply being restored, one should see an improvement in the position. So, I do not want to give a date, but I would think the resolution would be early. Or at least I am hopeful it is early. So, to come back to your point November 30, I would think that should be a doable date.

Sonia: I wanted to ask you a little bit about your own performance as well because this quarter, your slippages declined quite a bit to Rs 2,900 crore and you have maintained that FY17 full-year slippage guidance of Rs 15,000 crore which indicates Rs 6,000 crore slippage in the second half, but now I am trying to understand given the demonetisation and the volatility that we could see in the economy, do you foresee higher slippages in the second half, the possibility of that?

A: As I said, we have to wait and watch. As of now, there are no early leads as to these issues. Any case, it is the middle of the month. But our overall guidance of Rs 45,000-50,000 crore is adequate is our sense, because one of the elements, as time goes by, we are beginning to learn to address the portfolio issues, getting to know transactions better, there is higher level of industry coordination, there are more tools that are being made available. So, keeping all of that in consideration, I think we will stay with the forecasted number of being between Rs 45,000-50,000 crore of NPA and hoping it would be somewhere in the middle of the range rather than on the higher end of the range.Latha: What are you expecting on the rate front because you have 14 percent higher CASA deposit? Do you expect that you can drop rates fairly quickly?

A: If you look at the way the market has reacted to the flow of funds, you can actually see the gains; you can see the increase in the price of the bonds. So, that is a pre-read on this. Regardless of the policy rates, the demand and supply in the near-term would result in reduction on cost of funds for the borrowers.

Now, even if it does not result in a decline in the marginal cost of funds based lending rate (MCLR) though I expect that to happen, the transactions that are being done in various forms would and for customers who are negotiating new credit, we would expect the rates to be lower. But we have to, from a bank’s perspective, look at the overall balance sheet and see how our asset liability run off is and where the balance sheet is positioned to deal with a declining interest rate environment and we are reasonably well placed as Bank of Baroda to deal with that.

Sonia: We are also trying to understand the demonetisation day after day. It is first for a lot of people like us. We have not seen this during our time, but just wanted to understand will banks like you have to relook at the underwriting process for the retail loans, for the rural loans in the near future and could that lead to a slowdown in loan growth, especially for some of the segments like retail?

A: When you broadly talk about changes on the underwriting standards, they have to happen with all these analytics and robotics and various other kinds of things and using various other parameters outside of normal credit price parameters, those changes are going to happen. They are secular and have nothing to do with the current demonetisation effort.

As far as the current process is concerned, we are going to continue to focus on what our fundamentals things in terms of making our processes better, but I do not see applying any tighter criteria at this point of time in terms of approving the credit. Now if in fact, as you allude to, the demand for automobiles or demand for housing or stocks come off, then automatically, I do not see again how that should also further get accentuated with further tightening of credit.

So, at least speaking for ourselves, we do not see a situation where credit underwriting standards are going to change. But again, let us wait and watch for another month-month-and-a-half. There is no point having knee-jerk reaction at this point of time. It is quite uncalled for. Portfolios are generally stable for us. It is, if anything the retail portfolio is slightly improving and given all of these things, I do not see any real need to change. Other than the secular changes that we are working on in terms of bringing analytics and other kinds of data to underwrite the customer.