The Hindu Business Line : Bank of Baroda to focus more on fee-based income

Mumbai, Sept. 28 When Mr M.D. Mallya took over as the Chairman and Managing Director of Bank of Baroda in March 2008, the banking industry was facing a slowdown in credit and experiencing pressure on interest margins. Mr Mallya has charted a path for the bank, with a focus on fee income from augmenting the retail customer base, emphasis on credit quality improvement and re-orientation of the staff towards customer-centric service.

In an interview with Business Line, Mr Mallya talks about his plans for this fiscal.

Bank of Baroda has seen the impact of rising interest rates with its net interest margin (NIM) falling to 2.76 per cent as at end-June 2008, from 3.02 per cent in the previous year. How do you see the situation going ahead, for the bank and for the industry in general?

NIM is likely to be under pressure during the current year. One is on account of anti-inflationary measures taken by the RBI, especially the increase in the CRR, which does not give any returns. And number two, because of the increase in the repo rate. Consequently the interest rates have moved little bit northwards. Therefore, the overall impact on treasury is substantial. It has increased the overall cost of raising resources also.

How do you propose to deal with falling interest income?

One way to overcome the impact is to try to moderate the increase in the cost of deposits. The other is to focus on CASA and retail term deposits, i.e., less reliance on bulk deposits. This is our stance for the current year. Be totally market focused — improve the CASA and improve the retail deposit base.

You need to ensure that returns on the advances also improve by diversifying the portfolio and not relying on bulk advances. Wherever re-pricing options are available, either at the time of roll-over or while giving fresh loans, renegotiate for better rates of interests. These are the cardinal rules which should help protect NIM.

How do you say you expect retail advances to grow when there has been a slowdown and delinquencies have gone up?

We need to have a sort of uniform or equitable growth across segments — be it retail, SME, mid-corporate, corporate. Within retail there are sub-segments. May be personal and consumer loans had seen more delinquencies, whereas in mortgage-backed loans the delinquencies are not much. So, we take care to see that we moderate growth in segments where we have not been doing well and try to focus on areas where we are doing well.

Apart from CASA, where do you see more income coming in from this year?

We see more fee-based income, selling third party products such as mutual funds and insurance, and gold coins.

RTGS, NEFT services will also bring in fee income. The volumes of customer transactions, we hope, increase by about 25 per cent. The increasing fee-based income alone would substantially add to the bottom line.

Traditionally, because the treasury was doing very well, you had an excellent income stream coming from treasury, both domestic and international. Therefore, there was a sort of complacency settingin ; treasury contributed significantly and we have neglected other income. Now we need a fee-based income not including treasury, but focusing on core banking. We will, therefore, focus on letters of credit and guarantees.

Our focus on this has resulted on 45 per cent growth in the first quarter in commissions, forex transactions and wealth management products. The incremental efforts in this segment should give us a growth of 25 per cent.

Is corporate credit growth slowing down? Are corporate clients borrowing less?

I have not seen any deceleration of demand from the corporate front. Whatever projects are under implementation, the draw downs have been happening as per the estimates made earlier. In fact we have seen demand for expansion from new projects also.

The only deceleration is on account of consumer and personal loans and real estate sector. Here, perhaps more than the demand coming down, banks have been little more cautious in restricting their exposure.

What are the estimates for credit growth this year?

My total business would increase from Rs 2.59 to Rs 3.10 crore. Credit growth domestically could be 20-25 per cent. Internationally it could be 30-35 per cent. In terms of resources, it could be 19-21 per cent domestic growth and similar growth overseas.

So, overall, I should see 23-24 growth without much difficulty.

The perception is that you have not been able to capitalise on your overseas presence.

We have done well internationally. As in June 2008, growth in international business has been 50 per cent, year-on-year. This is quite strong, despite the fact that internationally we have seen lot of difficulties, in terms of raising resources and lending. Our percentage of international business increased to about 20 per cent as of March 2008, from 17 per cent; and by June to 22 per cent to total business. In terms of profitability, international business contributes about one third. We have seen a progressive increase.

This year also in international business I would expect 30-35 per cent growth.

Where are you planning to expand overseas this fiscal?

Representative offices in New Zealand and Australia would be converted into branches. We have planned to open few branches in Africa through subsidiary route. We have applied for a licence in Houston, USA. In Trinidad and Tobago we would be opening two branches through subsidiary route. In China we opened a branch in August this year. We may open a couple of branches in South Africa.

What are the plans with regard to recovery management?

Our aim is to restrict fresh slippages to 1 per cent. This is a gigantic task. But we have taken efforts such as improving credit quality by proper credit investigation and monitoring.

For all Rs 1 crore and above advances, we have a set up a separate credit monitoring department, headed by a general manager, which will allow for focused monitoring.

Delinquencies in smaller accounts, like Rs 10 lakh, Rs 5 lakh, require a special drive to see that they do not become NPAs. Here we have seen that it is more on account of laxity in follow-up rather than credit origination having been wrong. If an instalment is overdue, we don’t call for payment and then it becomes an NPA. Have a regular follow up. That is where technology comes into play.

We have a system, ASCROM, which generates at any given point of time the status of all accounts across the bank — whether it is overdue or regular. The moment an account gets classified as ‘Special Mention Account’, it requires a little bit of a focused attention.

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