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Business News/ Companies / People/  ‘Govt capex will create fresh demand for loans’
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‘Govt capex will create fresh demand for loans’

We should be able to see much quicker growth in aggregate credit, supported by further acceleration in retail and corporate growth, says Sanjiv Chadha, chief executive, BoB

Sanjiv Chadha, chief executive, BoB.Premium
Sanjiv Chadha, chief executive, BoB.

MUMBAI : State-owned Bank of Baroda’s (BoB’s) year-on-year (y-o-y) corporate loan growth was muted in the December quarter, but the momentum is expected to pick up. The bank is looking forward to the government’s capital expenditure plan in FY23 to kickstart the private capex cycle, creating demand for fresh loans. The lender, like its peers, also has a pipeline of unutilized credit limit for working capital and term loans, Sanjiv Chadha, chief executive, BoB, said in an interview. Edited excerpts:

What is the outlook on your cost of deposits in the coming quarters?

We made sure that our deposit growth was closely aligned to our loan growth because any extra money that you get you will have to place it in the reverse repo at a negative margin. Therefore, we made sure our pricing of deposits was appropriate to get the kind of growth we wanted. If you were to look at the composition of our deposit growth, it is almost entirely current account and savings account (CASA). When it comes to term deposits, they have grown marginally and there is a 17% y-o-y fall in bulk deposits, which tend to be high-priced. These are the reasons why our deposit costs have fallen substantially. As the composition of growth starts to include more term deposits there will be an impact on overall cost. If you see overall cost, the blended cost of term deposit growth and savings bank growth, even then we should be able to hold our cost. Two years ago, we were at a CASA ratio of 37% and today we are at 44%. So, we have actually built in very strong buffers. When rates start rising, term deposit rates will start moving and not saving deposits.

How do you look at the government’s capex plans for 2022-23?

We were looking at two things from the budget. One was the broader support to the economy because the private investment cycle has not fully picked up. The budget numbers are very promising, considering that the government will support broader economic growth through elevated levels of expenditure. Most of this expenditure is now directed towards infrastructure growth, which means lending opportunities for us. Even if you see the last few years, sectors where the government played the role of an enabler saw good loan growth. We saw a lot of good loan growth in road projects and that was because the government played a very proactive and constructive role through the National Highways Authority of India. Similarly, we saw a lot of proposals come in the renewable energy space and that is where again there was a significant government intervention a few years ago in terms of power purchase agreements. The fact that the government is spending money and is creating those conditions for asset creation should translate into good opportunities for loan growth.

Corporate loan growth was meagre in Q3 while retail loans drove growth. When do you see a pickup in credit growth?

If you look at it sequentially, it clearly shows what is happening now. We had a bit of a tough time in Q1 because of covid-19 but from the second quarter onwards we have seen a pickup. It is now a fairly smart pickup that we are seeing in advances. As we go ahead, we should be able to see much quicker growth in aggregate credit, supported by further acceleration in retail and corporate growth.

Advances growth is not an end in itself and the objective is to grow the net interest income (NII). This is a product of two factors: growth in advances and margins. If you have growth at the cost of margins, it does not help. The fact that our NII has grown in double digits shows that strategies for disciplined growth has paid off and now, as the market improves, we should be able to grow as well as keep our margins intact.

What led to a rise in agri bad loans?

As far as the agri loan book is concerned, we are seeing an improvement in terms of stress. I do not believe there is any trend that would seem to suggest that as compared to historical levels we should be having higher non-performing assets. There are isolated incidents in particular regions where there may be some temporary challenges but not on the book as a whole.

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ABOUT THE AUTHOR
Shayan Ghosh
Shayan Ghosh is a national editor at Mint reporting on traditional banks and shadow banks. He has over 12 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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Published: 08 Feb 2022, 12:23 AM IST
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