S.S. Mundra, Chairman & Managing Director, Bank of Baroda, is betting on positives visible in the economy, and says that the banking sector may get a breather from the tough challenges it faced in 2013.

He spoke to Radhika Merwin over the phone to share his outlook for the coming year.

Economic growth is at a four-year low and interest rates are close to previous highs at 9 per cent. Do you still think the sector’s troubles are over?

I should think so. There are two key factors. One, there is a direct correlation between the growth in GDP and credit growth for the banking sector. As growth in the economy revives, credit offtake should improve. Two, we are looking at a more consistent interest rate regime. Oil prices continue to remain benign. With good monsoon and some of the supply-side constraints getting sorted out, inflation worries should ease. Thus, while the current volatile environment makes a definite prediction difficult, over a medium to long term period, interest rates will have to come down.

What about asset quality, do you see it improving?

While the revival in loan growth may happen, the same cannot be said for asset quality. This is because the reversal in asset quality trend will only happen with a lag. So, we may continue to witness stress in the next few quarters.

The RBI recently released a discussion paper — Revitalising Distress Asset. Your thoughts on the proposed framework.

These are definitely good measures. One, it will bring in more transparency. The RBI will be setting up a Central Repository of Information on Large Credits to collect and disseminate credit data to lenders. Two, it also seeks early resolution of stress in accounts by formation of a lenders’ committee. This group will look at individual cases and explore options to resolve the account.

radhika.merwin@thehindu.co.in

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