‘NPAs can decline due to cleaning up of balance sheet, improving credit cycle’: Interview | Sanjiv Chadha, MD and CEO of Bank of Baroda

The stress in the corporate segment is well-contained, but margins are going to be under pressure.

By Ankur Mishra
Double-digit credit growth may be challenging for Bank of Baroda, according to Sanjiv Chadha, MD and CEO of the lender. Speaking with Ankur Mishra, Chadha said growth is likely to be impacted by the second wave of Covid-19. However, the lender is banking on a positive credit growth in the corporate segment in FY22, despite a muted showing in the March quarter. Edited excerpts:

What will be your strategy for FY22? Will you be cautious in lending in the current scenario?

Unfortunately, we are in a similar position [to] the beginning of the last financial year … Growth is likely to get impacted and it may not be very high. Therefore, for us in terms of strategy, on the liability side we would want to do a similar thing. Last year, we were conscious that credit growth will not be very high. It makes sense to make sure that your deposit growth is aligned to credit growth … And also make sure that deposit growth is of good quality. We believe this year also credit growth is not going to be extraordinary. A double-digit credit growth may be challenging this year. The emphasis will again remain more on the retail segment. But if we are looking in terms of balance, my sense is that retail will still grow faster compared to corporate. The stress in the corporate segment is well-contained, but margins are going to be under pressure.

Although the corporate book has remained flat in the March quarter, you expect it do better in FY22. What gives you the confidence for this?

There are two reasons for corporate growth. One is how the working capital cycle has changed. Last year, due to reduced activity levels, working capital utilisation came down very significantly. This time, although the second wave may have impacted corporates to some degree, we are looking for a growth rate of 10% for the economy. This should be reflected in some time [in] inventory growth for corporates and better working capital utilisation. You are seeing capital investment going ahead, which is driven by the government package. The government has been very aggressive in pushing the road sector. So we are seeing a reasonable growth. Also, we have a very good corporate book. There is a tendency on the part of corporates to consolidate as far as banking relations are concerned, so we are benefiting from that.

Unlike other lenders, your deposit growth has been muted, mainly on account of de-growth in bulk deposits. What will the strategy be there? Do you believe rates are at the bottom?

We have pushed current account savings account (CASA) growth aggressively. Our retail term deposits grew about 3%, but our CASA grew by 16%, which has really helped our CASA ratio to move up to 43%. There is not much room for any aggressive rate reduction. But I do see that there is a significant room to leverage our franchise and the technology improvement. This can still have further improvement in the CASA ratio.

Your write-offs have doubled compared to last year. What has been the reason? And will the bank continue to be aggressive on that front?

The write-offs are very much a function of where your provisioning is, so all the banks have seen the provisioning ratios rising very significantly. The accounts where you are 100% provisioned and where prospects of recovery may not be very bright, it makes sense to clean up your balance sheet. Therefore, both on account of the improvement in credit cycle the possibility of cleaning the balance sheet, we should see gross NPAs and net NPAs trend downwards.

What is your outlook on the asset quality of the bank?

There is no doubt that challenges are there. The nature of the challenge would differ bank to bank on the books you have. So if we are sitting on a very large book of unsecured loans, I am sure the nature of challenges would be of one kind. On the other hand, if you look at the book composed of good quality corporates, and given the fact that the impact of the second wave on corporates has been limited and we are in the midst of a credit cycle as far as corporates are concerned when you actually see an improvement going ahead, the nature of the challenge is different. We believe that despite the second wave and particularly because the issues in the international book we had last year were one-time, our credit cost should continue to trend downwards, despite the challenges we have.