Will ensure there is no room for accidents in corporate loan book: Sanjiv Chadha, MD & CEO, Bank of Baroda

In FY21, overall credit growth (domestic) was about 5 per cent, with corporate loans growing 0.02 per cent year-on-year (this was partly due to the fact that there was excess liquidity and there was no growth in the economy) and retail loans growing about 14 per cent. Going ahead, I would believe that faster growth will come from retail as compared to the corporate segment because we would want to do two things. First, focus on credit quality in the corporate segment to take full advantage of the credit cycle so that we can bring down our credit cost. The single factor that changes the profit of a bank is the credit cost.

Now, because our credit cost came down by 67 basis points, our profit before tax in FY21 increased to ₹5,556 crore (from -₹1,802 crore in FY20). So, that is what we would want to focus on— making sure there is no room for accidents as far as the corporate book is concerned, but at the same time re-balance the portfolio by being aggressive to the extent possible by keeping the quality intact on retail loans.

The proportion of retail loans in overall domestic credit would have moved up by about a percentage point in FY21. Going ahead also we should see this kind of progressive movement where the retail loan share keeps on going up while corporate loans come down. But more than the proportion of corporate loans coming down, the credit cost should come down even more and at the same time our margins should improve. If we chase something desperately, our margins will come under pressure, and we will also end up with credit quality which is sub-optimal. We don’t want to get into that game.

So, we would want to grow retail aggressively but without losing sight of the underlying quality (it is possible to do both; I think we have done that —for example we can have low delinquencies in auto loans and make money) and in corporate loans make sure we grow but bring in efficiencies. We have a large corporate book. We will try to see how we can get other income from corporates. Our fee income from cash management was up 75 per cent yoy. And this is what we want to focus on, making sure that while we are lending, we also get our due share of business from corporates.

If we were sitting on an unsecured loan book which was, say, 10-15 per cent of our loan book, I would say “hang on, let’s be very, very careful”. But our base is very small and because of this, any growth shows up as a large percentage of growth. So, I believe, we can be careful. We can have a reasonable growth, which will show up as a higher percentage of growth. But this need not necessarily mean that we are exposing ourselves disproportionately in terms of credit risk.

When it comes to our current delinquencies in the unsecured retail book, they are lower compared to home and car loans. This is simply because of the fact that we are lending only to our existing customers. So, that again gives us a very good handle in terms of quality. These loans are very short tenure, normally a year/year-and-a-half. So, if we believe there any issues, we can quickly re-calibrate in terms of our risk appetite.

I think, the fact is that in FY21 also, we were able to fund our growth entirely through internal accruals —whatever money we earned was enough to take care of our incremental growth. I think, going ahead also, we would want to do that. This means keeping a very tight lid in terms of risk-weighted assets. Now, this will come in two ways. One, where the risk-weight is high in large corporate exposures, we can bring it down. In the international book also, there are asset categories where the risk-weight is high and net interest margins are low. So, I would believe, we would be looking at moving capital, in comparative terms, from the international book to the domestic book because interest margins are higher in the latter.

So, for us, capital management is going to be very important. And we believe that it is possible for the bank in a moderate credit growth scenario (which is what we are likely to see this year and may be the next) to be able to fund the growth precisely by doing what I just mentioned —make sure that we keep our focus on the risk-weight of the assets and also grow in the categories of assets where the risk-weights are low. The moment we move to retail, we are also making sure that the risk-weights come down.

It is really a question of the choices we make. When we are saying that we would want to make sure there are no future accidents, this can happen in terms of growing loans in the higher-rated categories. In terms of incremental growth in FY21, nearly 70 per cent growth came from ‘A’ and above rated accounts where risk weights are obviously low. In retail, a large proportion of the growth has come from home loans where risk weights are low. So, I think, it is possible to have a reasonable growth ambition but at the same time, we make sure that we control the risks as well as utilise the capital efficiently.

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