Bank of Baroda MD and CEO P.S. Jaykumar
Bank of Baroda MD and CEO P.S. Jaykumar

BoB aiming for 10% return on equity in FY19, says Jaykumar

'Aspects to look for is that we are able to maintain a net interest margin, that we are able to grow our deposit growth to support our balance sheet growth,' says P.S. Jaykumar, MD and CEO of Bank of Baroda

Mumbai:After reporting a loss of Rs3,102 crore in the March quarter, Bank of Baroda (BoB) hopes to see a turnaround in profitability in FY19. P.S. Jayakumar, managing director & chief executive officer said in an interview that the bank is targeting a 10% return on equity this year. However, there are several risks emerging, especially from recognition of fraudulent accounts of more than Rs50 crore. Edited excerpts:

Are you on track to see a turnaround in the bank’s profitability?

I think the turnaround with respect to balance sheet growth or business growth is somewhat demonstrated reasonably well. There’s plenty of opportunity to grow. What is going to make the growth happen from hereon is just being focused on it and being consistent on it. What we need to focus on now is resolution of accounts and further slippages. The reason why we feel the bulk of it is now over is because we have taken large provision, but the number of accounts in SMA2 (Special Mention Accounts) or restructuring has considerably come down and therefore from here on we shall see significant improvement. It is entirely possible that the improvements are tempered towards the third and fourth quarter. There are some risks that exist and we have to be mindful of them. But we are talking here about possible outcomes, the probability is biased towards good financial year. We would think that this current year we should be able to hit 10% return on equity.

What are possible risks to profitability that you foresee this year?

Aspects to look for is that we are able to maintain a net interest margin, that we are able to grow our deposit growth to support our balance sheet growth. We do not have any bunching-up of provisions. When an account is declared as a fraud, number of accounts going through forensic audit...It could lead to bunching-up of provisions. So, it may not necessarily increase NPA, but it can affect short-term profitability.

You have drawn up a watchlist of nearly 12,000 crore. Have all the NPAs been fully recognized?

The probability about it is that some will flow and some will not. Our recoveries last year excluding NCLT has been around 5500 crore. Assuming 10-12 flow out, we should have recoveries that will substantially immunize the flow. That gives us confidence that credit loss which is the largest expense in our balance sheet will mute results in incremental earnings. Revenue growth that we see likely because there’s asset growth and liability growth are there. But liability growth will be challenging in the current financial year. We are going to see less opportunity of trading gains that had come off sharply last year. Luckily, we don’t have MTM (mark to market) to worry about. We have to make good of the fee income and other measures we are working on.

What is your plan on non-core asset sales?

We continue to focus on the non-core assets that we have been talking about. We have some investment in asset management company and some investment in other financial institutions. We ought to find an exit for them. Our growth plans are based on organic growth, diversified growth coming not only from retail side, MSME business and corporate banking business, agriculture.

Are you confident of keeping the gross NPA below 6%?

While we are conscious of the fact that the market and everybody else gives importance to these ratios, internally we are focused on the absolute amount of difference between the provision numbers, which represents the real risk to the firm. We have programmes and loan book which yield us less revenue. The risk return trade-off may not be the most favourable thing. So, they could result in balance sheet not growing. That risk we face on international side of the business. We have buyers’ credit programme. We have come with alternate set of programmes of improving our core business of lending in the host country markets. So it’s not a profitability issue because what we replace as 5-6 times of what we lose in the spread size and therefore the capital also gets balanced out. If the ratios worsen but the absolute amount of cap of what is taken as NPA and what has been provided, if that diminishes, it is as good as improvement in ratios.