Bank of Baroda, which reported over 30 per cent drop in net profit during the January-March quarter due to rise in bad loans , expects its asset quality to stabilise in the first two quarters of this fiscal.

S. S. Mundra, Chairman and Managing Director, told Business Line that the bank would be able to contain its non-performing assets (NPAs) starting the third quarter. Excerpts:

Your asset quality has declined and NPAs, both in domestic and overseas markets, have gone up. How do you see the asset quality improving in the coming quarters?

When I announced the October-December 2012 results, I had mentioned that the asset quality might be under stress for the next two-three quarters ( that is, till the second quarter of this fiscal).

If you look at the domestic NPAs, then the gross NPA percentage has come down marginally on a quarter-on-quarter basis. But this has got negated due to the rise in NPAs in the overseas markets.

We expect the NPAs to stabilise at the current levels during the first two quarters of this fiscal and thereafter (from third quarter), the asset quality will start improving.

NPAs from overseas business increased almost three-fold during the January-March quarter. Is that worrying you? Are there any plans of consolidating your overseas business?

The NPAs from overseas business is a one-off event and did not come from any lumpy accounts.

The regulations are more stringent for international operations as you have to adhere to both home country and local regulators. So even if there is some sign of stress in the system then we try to be proactive. But we expect the situation to restore starting this quarter.

Overseas operations account for nearly 30 per cent of our total business.

We are present in 24 countries but much of the business comes from six locations — the UK, the UAE, the US, Singapore, Hong Kong and Brussels. Nearly 70 per cent of our credit is in the form of syndicated loans, ECBs and buyer’s credit to businesses related to Indian entities.

Our exposure to the local market is just about 20-25 per cent. So the issues in those markets do not tend to affect us much.

We do not have any plans of consolidating our business. We plan to expand in existing regions instead of entering into new geographies.

Mounting defaults in corporate sector has made lending to the sector a “sore point” for most banks. Do you plan to lower your exposure to the sector?

Being a major player in the public sector domain in the country, we cannot be out of corporate lending.

But we do plan to focus on retail lending, including SME (small and medium enterprise) and agriculture. So moving forward, our growth rate in corporate business will be lower than that in retail.

This might lead to some kind of rebalancing of portfolio in the next three-four years.

Do you see interest rates, both on lending and deposits, inching down in the coming quarters? How do you see your margins improving this fiscal?

The liquidity in the system is likely to improve in the days to come with a rise in government spending. Inflation is also expected to ease.

Earlier, the inflation was ruling high, so reducing deposit rates was a challenge for banks.

While banks could not bring down the base rate much, they have tried to pass on some benefits to the retail and SME sectors by reducing the interest spread.

But this had an impact on margins. In the last one year, our margins have come down by nearly 50 basis points.

But now, with falling rate of inflation, the deposit rate might come down, thereby leading to lowering of base rate as well. We expect to achieve a NIM of over 3 per cent this fiscal.

>shobha.roy@thehindu.co.in

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