BANKBARODA — earnings call
The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.
Questions and answers
5th November 2022 · Research Analyst
Participating members from the Management Team of the Bank Mr. Sanjiv Chadha, Managing Director & CEO Mr. Debadatta Chand, Executive Director Mr. Joydeep Dutta Roy, Executive Director Mr. Ian Desouza, Chief Financial Officer (CFO)
Moderator · Conference Operator
Good afternoon, everyone, and welcome to the Analysts Meet for Bank of Baroda’s financial results for the quarter ended 30th September 2022.
Thank you all so much for joining us.
We have with us today, Mr. Sanjiv Chadha, the Managing Director and CEO of the Bank of Baroda.
He will be leading the call and he is also joined by the Bank’s Executive Directors and the CFO.
We will start with brief opening remarks from Mr. Chadha.
We have a short presentation for you and followed by that we will have the Q&A session.
Over to you, sir.
Mr. Sanjiv Chadha
Thank you very much, Phiroza, and a very good afternoon to everybody.
First of all thank you very much for joining us.
Frankly, we would have preferred that from now on, we can have physical interactions.
But we understand that there would have been a rather difficult clash, we thought that this quarter we might do it in virtual mode and hopefully again we will be seeing you with us from next quarter onwards.
So, let me just begin by introducing our team on the call.
We have Mr. Debadatta Chand, our Executive Director on the call who looks after International, Corporate for us and also Treasury.
We have Joydeep Dutta Roy, Executive Director, who looks after Digital, IT and a lot of our platform functions.
Ian, is our CFO with whom most of you would be familiar.
So let me just begin by a few opening remarks.
I have a few 3-4 or 5 slides for you and then we can open it up for questions.
I understand that the presentation would have been uploaded, the full presentation maybe an hour or more back so that may not have been enough time.
So I think it would be useful to just go through the key highlights.
So we will have the first slide.
So, our focus again has been on four areas for the Bank.
One has been growth, the other is to make sure that even while we grow we preserve our margins, third has been to keep costs under control and fourth has been in terms of improving asset quality.
I think this is a quarter where all the four elements seem to have come together rather well.
So, starting with growth as you would see on the screen, if it is visible to you that our overall advances growth has been 19%, a little better than the industry.
Within that domestic advances have grown 15% and international by as much as 41%.
The other good part of course, is that the growth has been well spread out as has been our emphasis for the last few quarters, retail has had the most robust growth at nearly 28% with agricultural, MSME, corporate all having double digit growth.
The corporate is actually the slowest which also again shows that there is still some upside in terms of as corporate credit picks up, demand picks up, I think there is scope for us to maintain or even better this rate of growth.
The other interesting point again is that pools have grown by a slow 3.9% which would mean that the organic growth of the Bank’s loan portfolio would be a tad bit higher as compared to the headline growth that we have just
discussed. · Research Analyst
Within retail advances again for the last few quarters we have seen unsecured personal loans which was relatively new area of emphasis for us, continues to grow at a very, very good pace with growth now coming to this quarter at about 170%.
We believe that we actually can have triple digit growth this year given the kind of pace we have set.
Auto loans which has been a strength of the Bank is nearly at 30%.
Education loans is again good at 23%.
But Home loans and Mortgage loans which if you might recall last year, has been an area of some concern for us that we were not really growing in line with the fastest in the industry that also is nearly at 20%.
So, I think overall it looks good in
terms of growth. · Research Analyst
If you look at the disbursement YoY figures in terms of growth they are even better with growth ranging from 50% in terms of growth in disbursement for education loans to more than 100% for home loans and mortgage loans.
When it comes to deposits, I think for the industry, the deposit growth is a little slower as compared to loan growth, so is the case with us.
Although our growth again at 13.6% is a bit better than the system.
Within that international deposits have grown in tandem with the growth in loans at 38%.
Domestic deposits have grown 10.9%.
The change of course is that now finally as term deposit rates have started increasing, term deposit growth rates have moved a little ahead of the growth rate for CASA which is something which is understandable and that’s what we expect to continue.
In terms of the prospect of the bank continuing to support robust growth in advances, I think what is interesting is while our overall global CD ratio is 80% but in the domestic market it is actually at about 73% which leaves some room for us to continue to grow our loans at a pace faster than our deposits.
The international CD ratio of course are above 100% because a large part of loans there, are funded by instruments like medium term notes and money market borrowings.
Again, what has been a matter of emphasis for the Bank is that even while you grow it is not at the cost of margins.
Last year we had tamped down our growth just to make sure that we protected our margins.
This year as we had guided in the first quarter we believe that it is possible both to grow in an aggressive manner and also to improve margins.
We had guided that we would be improving our net interest margins by about 10 basis points during the year.
The growth that you see in the net interest margins is at 3.33 substantially better than that although I must caution that there are some recoveries which are there.
So, our overall guidance continues to be that we would be improving our margins by about 10 basis points or maybe a little better than that as compared to last year during the current year.
Just to the previous slide I think another just we can go back to the previous slide, another interesting part is that if you compare the cost of deposits and yield on advances you would find that the cost of deposits has remained pretty much constant over the half year.
It has moved by about 7 basis points as compared in a quarter-to-quarter comparison.
But for the half year at 3.53 it is exactly the same as last year.
On the other hand for the half year the yield on advances have moved up by 21 basis points.
Our sense is that, as is generally expected, you would expect loan margins to improve as compared to deposits which would increase with a lag in terms of costs.
I believe there is possibly another quarter or two to run, where we will have the advantage of loan re-pricing outpacing deposit re-pricing.
In terms of costs, I think this is again one part of the story which is underappreciated, you will find that while growth has been good for all Banks but in the case of some Banks you will find that costs also have increased largely in line.
I think for us the good part is that the costs have again been under very, very tight control.
You might notice employee cost is up only 1% half year and 2% for the quarter.
The other operating expenses are higher in terms of 17% growth but a significant part of that is on account of depreciation because we revalue assets once in 3 years and therefore that results in a higher depreciation charge.
But overall if you would see even despite this depreciation impact the overall cost growth is just about 8% for the half year and 9% for the quarter.
So, we do expect that over next few quarters we should be able to maintain a significantly higher growth rate in both the asset levels as well as in terms of income as compared to costs.
The collection efficiency has been again one of the things which have had a significant improvement over the last few quarters, it continues to improve and it stands at about 98%.
SMAs which you might argue are the best lead indicator of any stresses that might be developing are now down to again a historical low of 0.42% which would seem to suggest fairly positive prognosis for the future.
The asset quality again has continued to improve, it did so even through the COVID period and now even more so.
We have been aggressive in terms of taking provisions because of the fact that the profits have been good, and as a consequence net NPAS are now down to 1.16% while gross NPAs are down by nearly 300 basis points about 280 basis points on a YoY basis.
The provision coverage ratio, in consequence, including TWO is at a high of 92 % and if you were to exclude that it is nearly at 80%.
Similarly, slippage ratio has been trending downwards.
We had guided for the slippage ratio to be between 1.5 to 2%, so it has come out at the bottom of the range for the half year.
And as far as credit costs are concerned, so they are also lower than what we had expected.
Going ahead also we would expect credit costs to trend downwards.
We had earlier been guiding at between 1.25 to 1.5%, now possibly we would want to revise that to between 1 to 1.25% even taking into account some mishaps in the coming quarters.
But for the moment we believe that the book is robust and things are pretty much under control so credit costs should continue to trend downwards through the coming quarters of the year.
In terms of profitability, the net interest income has had a very smart increase of nearly 34% which again is automatically a corollary of the robust growth we have seen in loans as well as the improvement in terms of margins.
Fee income at 12.3%, we normally expect fee income to target a growth of about 15% here or thereabouts.
Core operating profit that is excluding items like treasury gains, losses, interest on IT refunds, that’s come up at nearly 44%.
I think this is a figure which to my mind is significant in terms of the sustainability of the improvement in operations and operating profit that we have seen.
Of course, in terms of the reported operating profit that is again something which there's a little bit of a qualification.
The figure is 6%, but that is depressed by one item where there was an asset which was upgraded and because of that there was an equity valuation impact which was there.
If we would discount that operating profit growth even taking everything else into account is about 20%.
Our net profit, of course, as you would see is again at a record quarter level is at Rs.
3,313 crores an increase of 60% over what was a good quarter last year for us also.
These are the half year corresponding figures which pretty much show again figures which are pretty much in line in terms of the quarter, the quarterly figures of course being better because the second quarter has been better for us even as compared to the first quarter.
As a consequence, the capital position continues to be robust.
The CRAR is 15.25% but in case you also add the accumulated profits it comes to about 16.1%.
So, we are in a position now where despite having very, very good loan growth our internal accruals are enough to fund that loan growth.
The last point again is in terms of digital.
The fact that we have been able to contain costs is largely on account of the fact that we have made great progress in terms of digitalization of the Bank.
It means that you can grow your business without growing your physical footprint without growing your staff numbers.
So, I think this in really so many ways is the foundation for cost control and for making sure that increasingly, there are widening jaws between our income as compared to our costs.
That’s pretty much it.
Thank you very much and open to questions now.
Moderator · Conference Operator
Ladies and gentlemen, we are now open to take questions from the participants.
I request everybody to restrict to two questions per participant.
Please unmute yourself to ask the question or type your question in the Q&A box.
The first question is from Ashok Ajmera, please unmute yourself and ask the question.
Mr. Ashok Ajmera
Good afternoon, Chadha saab.
Mr. Sanjiv Chadha
Good afternoon, Ajmeraji, my apologies we are not having you in person.
Next quarter we will make sure.
Mr. Ashok Ajmera
Yes sir, no, no it was required because immediately after this, the State Bank meeting is also there which is physical this time.
So, any way thank you very much for having considered it, but definitely we will meet physically in next quarter.
Sir, I will begin with very rich compliments to you and your team for showing, I mean, not showing but for giving us fantastic results in spite of all these problems which are being faced.
Not only on operating profitability or profitability but other parameters also the Bank has worked very well, even the asset quality has improved a lot.
I have got just a couple of observations and questions.
Sir, our international book has grown little higher, which in most of the other Banks we have seen.
But ours being the next largest international Bank next to State Bank of India, having the maximum overseas branches, where do you see this growth is coming in and what kind of yield, with the interest rate going up there also, are we in a better position to make more money on the international business.
And secondly, we must be having large investment in our international branches or subsidiaries, so with the provision of mark-to-market of 100% on those investments, what kind of a hit you have taken in this quarter and the half year on that account.
So, a little bit clarity on the entire international book, this is my first thing.
Secondly, sir, you know last time I had mentioned that our auditors are giving emphasis for those two notes which are basically allowed as per the RBI policy only and which every Bank is doing it.
But why a special emphasis is required for that because it is as per the RBI circulars.
And I don't think, like for additional pension liability of amortize of 1018 crores and also that fraud amortization of about 91-92 crores, I think we can have a little discussion on that, why emphasis is required.
Because this is generally you know treated as I mean emphasis are generally for the negative points not for the positive or for standard points.
So, this is something.
And one is on the note no. 3 on the hedge policy which the Bank has adopted.
Profit on the derivatives contract would have been lower by 63 crores, so is this only this quarter phenomenon now started as per the approved policy or it was a regular event in the past also.
Because we have not seen this note in the past.
So, a couple of other things if I may be permitted.
On the treasury front, our treasury has performed well in fact even in the segment wise profit also there is a profit of 1460 crores against a loss of 169 crores in last quarter, and I think in trading book has also been good.
But, now going forward this further pressure coming in now with in fact increase in 75 basis points we might also see 50-60% basis points increase, where do we, where are we placed as far as the I mean how much are we cushioned for our AFS book or other investments.
So, these are a couple of questions and observations.
I have many more but then my other colleagues are also there.
If permitted in the second round I will come back, but if you can answer some of these questions.
Mr. Sanjiv Chadha
Thank you, Ajmeraji.
I will just again try to answer a couple of them and then hand it over to my colleagues.
In terms of the international book, I think we have for the last few quarters been reporting high growth.
The reason for that was two-fold, one was that we found that in the domestic market, particularly in the corporate segment, the margins were very depressed.
So as compared to the margins in domestic markets we were finding better margins in the international book.
The second part to your question is how our NIMs are, so, actually if you were to look at our NIMs and the trajectory over last few quarters, our NIMs in the international book have increased from over 1.3% to more than 2% now.
Now, if you juxtapose this 2% NIM against the fact that as against 50% cost to income ratio domestically on an average you will have less than 20% cost to income ratio abroad.
You end up making again a margin after cost of operations internationally which is higher than what we have done domestically.
So, it is on a net basis margin accretive rather than margin dilutive.
So, it is something that was an opportunity for us because of the fact that we have a fairly good international footprint and therefore what we have built up is a very diversified granular portfolio which again is reasonably well protected in terms of credit risk.
So, it achieves diversification, it also improves the margins for the Bank on a net basis.
Now the second part was in terms of the international investment book.
So, there we have tried to be disciplined.
I think the fact that interest rates were likely to increase was something that we were aware of, for some time.
So, we have made sure that either we are fully hedged or again the duration is kept at an appropriate level to protect the books of the Bank.
So, we see very little downside there as far as investment portfolio is concerned.
In most jurisdictions, except for one or two, the investment portfolio is largely to take care of regulatory requirements, for instance by way of high- quality liquid assets.
There is not a very large investment portfolio which might be there, besides that.
In terms of the point of emphasis, I think you can almost take it as a good news, that if auditors believe that this is something that is to be emphasized, it would give you comfort that apart from this there's nothing much, which is to be emphasized.
But I will again request our CFO to give his take.
But of course in terms of your point this is something which is entirely routine and can be dispensed with and we will see whether we can take it up with the auditors.
In terms of the 63 crores derivative figure and of course the treasury I think I will request Chand saab and Ian to take it forward.
Mr. Ian Desouza
Yes, sir, I will just take the points of emphasis matter, so largely Mr. Ajmera is right it is a very routine matter.
But essentially this is a dispensation provided by RBI which overrides the generally accepted accounting standards.
So it is permitted by regulators, so with the auditors consensus and the contention we have accepted that it is non-standard but permitted by regulations.
So, as Chadha saab said given that this is the only thing that they need to bring to attention, it is a good thing.
The second thing in terms of the international book we have adopted the ICAI guidance note on derivatives, as per that it is permitted that the hedges that we have taken on international investments can be used to offset any losses in the underlying book.
So, that is that note that you see, this is a board approved policy and hence the disclosure to indicate that if we had not adopted this policy.
So, this disclosure will be there till the end of the year, wherein from next year it will become business as usually, but essentially it is IRS swaps which are offsetting losses in the investment book of the international territories.
And lastly just as an additional point in this quarter we did have an impairment in international territories in terms of mark-to-market but that was more in terms of a corporate bond which had to be valued as per RBI norms and hence there was a loss.
But otherwise largely there was no significant loss in our investment book in international.
Mr. Sanjiv Chadha
Chand Saab?
Mr. Debadatta Chand
Just to give outlook with regard to the domestic treasury and also international treasury book, you would have seen that this quarter the income on investment has been quite strong, and that is rather higher than the increase in book, in that way.
So, in rising interest scenario typically this happens in terms of higher income at the same time the trading profit is lower.
So, going forward also considering the interest rate will still be elevated, we will try to optimize on income side more.
As earlier we already articulated that growth in FRB book which is a substantial portion.
So, that component that delta is going to be there in the book for the coming quarters.
On the international side, Ian has rightly clarified on that, our normal investment is totally hedged in terms of hedging instrument so any profit/loss out of that would be duly controlled except barring one investment which was a loan plus investment kind of thing out of restructuring which was appearing below the line earlier in June, it has only moved above the line.
So, in terms of net impact on the book net profit hardly anything because it is only accounting because September the loan was upgraded at the same time the NPI, I mean the valuation and the investment continued to be there in the same way which has just gone from below the line to above the line, otherwise remaining investment we do have adequate cushion in terms of value instrument and these are all duly covered.
Moderator · Conference Operator
The next question is from Saurabh Kumar, please unmute yourself and ask your question.
Mr. Saurabh Kumar
Sir, a few questions, one is you said that there were some one-offs in the interest income, could you comment on what the magnitude of those one-offs is.
Second is 808 crores charge you have taken, could you comment on what's that.
And the third is basically could you comment on the ROA which is 1%, obviously great, do you think there is sustainability around this number from hereon.
Thank you.
Mr. Sanjiv Chadha
Thanks, Saurabh.
I think the first part, sorry, I lost track.
Saurabh, if you can just repeat the question, I will make a note of it, if you don't mind.
Mr. Saurabh Kumar
Yes, the first is on the interest income, you said that there are one-offs in the interest income, could you comment on that.
Second is 808 crores write-off, if you can comment on that.
And the ROA 1% how sustainable is it do you think.
I will probably just add one more, sorry.
What is your restructured book.
Thank you.
Mr. Sanjiv Chadha
Okay.
So, I will just take two of these, this 808 crores write-off I think I will hand it over to Chand saab or Ian to take that and also the restructuring one.
So, in terms of the interest income normally again I did say one-off and that is correct, you have at times slightly chunky items, so there was a large upgradation on account which was there.
On account of that there was an accretion to the interest line.
You can argue that that is something which would happen every quarter, but again I think just to sound a note of caution we believe it is always good to mention that because there's always a possibility that in the next quarter you might not have as much accruing as in terms of that particular line.
So, if we were to take that figure, so there's again that recovery and also what Ian mentioned that I think there was one swap that we unwound which again added to the interest line, both taken together would be about 20 basis points, 18-20 basis points which were there.
Some of this could come again in future particularly in terms of recovery, but may or may not, so that’s what the quantum is.
Even if we were to entirely remove that we would still be pretty much in line with our guidance that we expect a 10 basis points improvement in the net interest margins.
What we see this quarter is a substantially larger improvement, therefore we thought that in terms of disclosure it is best to qualify that.
Now in terms of the sustainability of the return on assets I think we have been guiding that we expect to hit a 1% ROA and a 15% plus return on equity in the next year.
Now because of the fact that is a good quarter, we have hit that figure in the current quarter.
We expect improvement to continue.
But as of now, we would be guiding that we should end up with an ROA, maybe a little below 1% this year and cross the 1% threshold next year.
But in terms of trajectory, we expect to maintain the upward trajectory and fairly strong reporting in terms of results.
Over again to Chand saab and Ian in terms of a) that write off that we spoke of and b) the other part which was in terms of restructuring.
Mr. Debadatta Chand
The restructured book, if I talk about it, it is something around 17,000 crores as compared to 20,000 in March 2022.
So, it has gone down.
With regard to the one off that we talked about in terms of we already clarified with regard to a provision impact which is below the line and above the line in the other income which is appearing is actually the revaluation investment which is minus because of this particular impact, although there is nil impact on the Net Profit, because it was earlier appearing in June below the line.
With regard to the IRS, as sir has already said, that’s a one off.
But the remaining again, whatever international investment we do have, we’re adequately cushioned in terms of having proper hedges against that.
So, given a scenario of further rate hike happening and there being depreciation on both investments, we do have also on the IRS, covering of those depreciations.
So, in a broad sense the book is quite stable.
Again, on the income side, if I focus on investment more, the growth in investment income has been almost 27%, which is higher than the book increase.
And, this is a rising interest scenario where typically you’re trying to optimise on the income side more as compared to the trading profit, and that would continue for this quarter also, that is what our hope is.
Ian, do you want to add anything further?
Mr. Ian Desouza
No, nothing sir.
Moderator · Conference Operator
The next question is from Jay Mundra.
Please ask your question.
Mr. Jay Mundra
Hi sir, good afternoon.
Sir, I wanted to check on the sustainability of the growth.
So far in last quarter and this quarter, we have clocked 19.6 and 20.6 kind of a number, part of that could have been because of the lower base.
So sir, I wanted to check your thoughts on as to how do you see the growth by March end?
Mr. Sanjiv Chadha
So, I think we can see it in two contexts.
One is of course, you’re right, that the first two quarters for us was bad, putting the 1st quarter of last year where we had negative growth in terms of loans.
2nd quarter I think QoQ we grew by about 5%.
But, if we were to take the full year growth last year, it was, I think below 10%; maybe 7-8%.
So, if we have grown 20% in this 1st half, then you pretty much have grown at equivalent to what we did last year.
So, anything which comes after this is a plus.
So therefore, we can safely say that we should grow at a substantially higher rate as compared to last year.
Now, that we compared last year.
Then if we were to look at this quarter, and how could things be in the next quarter, I think the kind of rates we have seen in some segments, I think they are exceptional to my mind, 20% home loans, 30% car loans, some moderation is possible because there was pent up demand.
For instance in cars, because there was semiconductor crisis, there were availability issues.
But, I think there is some upside for us in the fact in terms of the composition of our growth.
Now, our corporate loan growth continues to be slightly depressed at 10%.
That is the segment which is the slowest growing segment, and it is 50% of our book.
Now, as pricing power is returning, I think there is scope for us to increase that substantially.
We have continued to be disciplined in terms of pricing, which is why our corporate loan growth is slower as compared to some of the Banks.
But, we believe that is something that could translate into an upside in terms of yields also as interest rates are moving up.
And remember, interest rate increase has not got translated into MCLR in any substantial manner yet.
It will get translated into that over the next few quarters.
So to my mind, if we were to backend the corporate growth a little bit, which I think will work out in our case, you have an upside both in terms of growth, as also in terms of margins.
Mr. Jay Mundra
Understood sir.
So, is it fair to say that we would be growing as much as the system?
Right now we are growing slightly ahead of the system.
But, if the system were to end at 15-16%, can we expect a similar growth for BOB?
Mr. Sanjiv Chadha
I would believe that is something which you should expect, yes.
Mr. Jay Mundra
Sure sir.
And secondly, on your EBLR transmission and also if you can give the breakup of the loan book by EBLR and MCLR and maybe the fixed rate and others?
And, on 30th September, what is your EBLR transmission policy sir?
The 30th September rate hike by RBI, when you would have, would you have passed on immediately or does that come after a certain lag?
Mr. Sanjiv Chadha
To my mind immediately, but let me again pass it on to Chand saab in terms of the full breakup on in terms of how is our benchmark – EBLR, MCLR and the rest.
Mr. Debadatta Chand
Yeah, we’ll provide you the exact data, but all the retail loans are on the BRLR or the EBLR rate.
And, the remaining, the corporate loan mostly, because earlier there used to be T- Bill, etc, but these are now largely MCLR linked.
So in that way, the pricing transmission is also happening, but the exact breakup we’ll provide you.
Mr. Sanjiv Chadha
So Jay, broadly as far as I know, close to 30-35% is linked to EBLR.
About 50% is nearly MCLR, and then you have other benchmarks, some of them including old BPLR and all.
That’s the rough thing.
But, I think we’ll give you the exact figures.
Mr. Jay Mundra
Okay sir.
And secondly, on your overseas slippages, this quarter there seems to be a slight increase in the overseas slippages.
If you can comment on the nature of these slippages?
Because, we have grown our overseas book rapidly, is this some change in the NPA trajectory there?
Mr. Sanjiv Chadha
So, I think we continue to guide that our overseas book is very good; there are no surprises which are there.
This was not a surprise.
So, this was an asset which was restructured.
It was also partially provided.
Now it has slipped and it is fully provided.
So again, we will continue to guide.
We don’t see too many surprises in the overseas book.
Mr. Jay Mundra
Right.
And last question sir, on standard assets provisioning requirement, there were few sovereign, quasi sovereign, state government accounts for which other Banks seem to have provided an accelerated standard assets provisioning.
Has that been the case with Bank of Baroda also, or do you expect accelerated standard assets provisioning for some of these state government or FCI or civil supply kind of an account?
Mr. Sanjiv Chadha
So, let me first give you a small answer and then I will pass it on to Mr. Chand again to give a more complete thing.
So, to the extent it is required, we actually have done all provisioning which is required; either required by Reserve Bank or by our own auditors.
But, if there’s anything more to add to that, I’ll request Chand saab to do that.
Mr. Debadatta Chand
See, standard assets provisioning we do have, but the reference that you’re making in terms of the government accounts, we do have a higher provision therein, but not to the extent impacting anyway with regard to our already held provision or impacting the further provisioning for the Bank as a whole.
Does it clarify?
Mr. Sanjiv Chadha
Jay, let’s put it this way.
There’s nothing which we were supposed to provided, which we have not provided.
Moderator · Conference Operator
Thank you sir.
The next question is from Mahrukh Adajania.
Please ask your question.
Ms. Mahrukh Adajania
Yeah, hello sir.
Congratulations.
Sir, I just have a couple of questions.
Firstly to clarify, compared to the one off or slightly lumpy margin from one off in this quarter, what would it be last quarter?
Roughly any idea, 1st quarter?
Mr. Sanjiv Chadha
So in terms of margins, I’m not sure whether I’ve understood you correctly.
What we have been guiding that we would expect a 10 bps improvement in margins in this.
So, we continue to stand by that guidance.
But I’m not entirely certain whether you were implying something else.
You can just clarify please.
Ms. Mahrukh Adajania
Yes yes.
So, what I’m saying is, you said that 20 bps of this quarter’s margins could be attributed to reversals and swap unwinding.
So, was there any such reversal or unwinding in the last quarter, the 1st quarter of 2023, that’s my question and how much was it?
Mr. Ian Desouza
We would have disclosed that sir and Mahrukh.
So there was no such lumpiness in last quarter’s margins.
Ms. Mahrukh Adajania
Okay thanks.
And my other question sir is on the New Wage Bill.
When will you start providing towards it?
And basically, when do we have to calculate?
Even if you assume a 10-12% increase, what do we apply that increase on?
On what proportion of the employee expenses?
60%?
70%?
So, just some clarity on the New Wage Bill, and what kind of per quarter provision you could see?
Just a ballpark number.
Mr. Sanjiv Chadha
Ian, do you want to come in on that?
Mr. Ian Desouza
Yeah.
So basically, if we go by the past trends, it could be something like a 200-250 crore provision per quarter.
This provision will only be largely for the last quarter in a major chunk, because it will apply to full of Q4 of partly to Q3. So, it’s not going to be a significant dent on the operating expenses of the company, but yes, it will have to be made.
Ms. Mahrukh Adajania
Okay, got it.
And, just one clarification on the outstanding restructured book.
The 17,000 crore is the all inclusive number including MSME restructuring of prior schemes?
Mr. Ian Desouza
Yes, it is.
Ms. Mahrukh Adajania
Okay, thank you so much.
Mr. Debadatta Chand
Jay, if you’re still connected, you wanted that breakup on the different pricing, right?
We have MCLR almost to the extent of 53%, the EBLR/BRLR that we talk about, that is almost 28%.
The remaining are either a small component of fixed rate at 7%, remaining are all T-Bill and G- Sec based.
So, roughly around 28% is the EBLR and 53% is the MCLR.
Moderator · Conference Operator
Thank you sir.
The next question is from Rakesh Kumar.
Please ask your question.
Mr. Rakesh Kumar
Just few questions.
We have done quite well on the margin front this quarter.
Looking at some of the unamortised provisions that we carry, what is the reason that we are not in the family pension thing?
We have not cleared it off instead of showing the kind of ROA we have done.
Just a kind of a suggestion and just to understand from you why we are carrying it still?
Mr. Sanjiv Chadha
Ian, would you want to take that?
Mr. Ian Desouza
Yeah.
So one is, these are not items which would help strengthen the company from a risk perspective.
So, if you see, it’s not that we have tried to take one-offs and overstate the profit of the company.
For eg. when we had this large state-owned entity which was privatised, we released more than 2,500 crores of provision in Q3 and Q4 of last year, against which we built up our provisioning cover significantly.
Again, in this quarter, we had a significant release from one chemical international account which got upgraded.
In the NPA line, we had a significant release though we made some provision in the MTM for the corporate bond.
So, given any large release, we always build up provisions that will counter cyclically help the financial position of the company.
So, this particular thing is a permitted accounting treatment.
It is more accounting in nature.
It doesn’t either way strengthen or diminish the strength of the balance sheet of the firm or the financials of the firm.
So, I hope I have answered your question.
Mr. Rakesh Kumar
Got it sir.
Sir, another question was pertaining to Notes of Accounts no. 16.
So, we have delinquency from RF 1 and 2 to an extent of around 16-17% in the 1st half, and we have an outstanding of close to around 8,400 crores now.
So, what is the provision just of this number that is outstanding?
The outstanding provision on this number?
Mr. Ian Desouza
We’ll come back to you on this exact provision number, but your numbers are right.
We have about 8,000 crores in RF 1 and 2, and we have NPAs also in that.
We’ll come back to you on the provisions.
Mr. Rakesh Kumar
Sure sir.
Thanks a lot and that’s it from my side.
Moderator · Conference Operator
The next question is from Anand Dama.
Please ask your question.
Anand, please unmute yourself and ask your question.
Mr. Anand Dama
Hello, am I audible?
Mr. Sanjiv Chadha
Yes Anand.
Mr. Anand Dama
So the first question is, basically how much is our LCR, and what is the strategy going forward on the deposit growth front?
Our credit growth is pretty strong, but we also need to accelerate the deposit growth.
And, if the rates are going to go up, then basically your guidance of the 10 bps margin expansion hereon, does it hold good going forward?
Mr. Sanjiv Chadha
Broadly again, we believe that it is normal for advances growth to lag deposit growth when the economy is slow and liquidity is abundant.
And, vice versa when the economy is improving and liquidity is tightening, right?
So, this is exactly what we see now.
And to my mind, again, the continuation of this trend for a few quarters is far for the course and should not give us any reason for disquiet.
Having said that, we are focused on deposit growth.
And, as we saw in the numbers, our deposit growth has been possibly a little better than the system.
We’ll continue to focus on deposit growth while being fully conscious that this is a time where discipline in terms of rates could give disproportionate benefit in terms of impact on the bottom line, because to the extent that the re-pricing of loan stays ahead of deposits, I think there is profit again, which is likely to accrue.
So, without again in anyway compromising our efforts in deposits mobilisation, we would want to make sure that any increase in rates is directed wherever there is a rate elasticity in terms of deposit growth.
So, I think we’ll try to be very intelligent about it, but try to maximise deposit growth.
So we are fully conscious of that.
The second point I’d want to draw your attention to is another figure that, in my brief presentation that we had made, that while our overall CD ratio is 80%, when it comes to the domestic book, it is about 73%.
So, we have some scope in terms of allowing advances growth to be a little faster than deposit growth.
Mr. Anand Dama
Yeah.
Sir, your LCR number.
Mr. Sanjiv Chadha
LCR is about 135% I believe.
Ian, if you could confirm that.
Mr. Ian Desouza
Yes.
It is 135%.
Mr. Anand Dama
Sir, second is that your term is going to end in January 2023, but I think you have an option to take an extension.
Are you going to exercise that option?
Mr. Sanjiv Chadha
I believe that the option is more with the government than with me.
But yes, should that possibility be there, you might probably see me for another quarter or two.
Mr. Anand Dama
Sure, great sir.
Thanks a lot.
Moderator · Conference Operator
The next question is from Abhishek.
Please ask your question.
Mr. Abhishek
Hello.
Mr. Sanjiv Chadha
Yes Rahil.
Mr. Abhishek
Sir, this is Abhishek.
Mr. Sanjiv Chadha
Okay Abhishek, please.
Mr. Abhishek
Sir, my question is back to wage revision.
I think Ian said 200-250 per quarter in couple of quarters, Q3, Q4. But my question is, what is the overall impact?
I’m sure it will be amortised over several quarters.
So, what will be the overall impact and what is the assumption you would be taking?
Is it going to be around 10-12% or is it likely to be higher maybe 15-16%?
So, just some clarity around that.
Mr. Ian Desouza
To begin with, let me talk about the accounting perspective before Chadha saab comes back in terms of his expectation.
So, this is not an amortisation.
This is actually a current period cost.
It’s just that the wage arrear amount will be crystallised after negotiation that would stretch over 6-12 months.
So, at that point, it will be a back-dated payment.
So, it’s not wage arrears as of now, it will become wage arrears maybe 2 years from now.
So at that point, Banks would not like to take a hit all at one go.
So, on a prudential basis, they start making the provisions from now.
So, there’s no amortisation involved.
Mr. Abhishek
Yeah Ian, that I understand.
I just wanted to understand the total hit or total provision that you would estimate.
Because of course, when the actual comes, you will make the balance provisions, but the overall estimate is what I wanted to…
Mr. Ian Desouza
No no, this is per quarter, right?
So basically, if you presume there is no long lengthy negotiation and it all got sorted out in one day…
Mr. Abhishek
Oh, okay.
Mr. Ian Desouza
We are presuming the Wage Bill per quarter would go up by 250-300-350 crores.
So that’s the way…
Mr. Abhishek
Okay, so till it happens.
Mr. Ian Desouza
We are building a kitty that will work that way.
Mr. Joydeep Dutta Roy
Just to add to what Ian was saying, this is just an estimate, this is not an actual figure.
So, 12-15% is basis what has happened in the past wage negotiations.
So, we take a cue from that and make a conservative estimate of 12-15%.
Mr. Abhishek
Understood.
My second question is, this NARCL, approximately how much would you be selling and what kind of realisation do you expect or provision release.
Mr. Sanjiv Chadha
So, I think last few quarters I’ve been saying don’t hold your breath.
It is of no large significance for us.
So again, given the nature of our balance sheet and how it has evolved, for us it’s not going to be a very large figure.
So, marginal impact.
Mr. Abhishek
Okay sure.
And finally, just how much additional liquidity are you carrying?
Approximately how many quarters until this runs off, because that’s the space you have from even raising deposit rates; you can hold off till that.
Mr. Sanjiv Chadha
Chand saab, would you want to take that.
Mr. Debadatta Chand
Yeah, we do have adequate liquidity and that would continue.
See, liquidity is a management.
It’s not like keeping liquidity for something, it’s management of liquidity and we are adequately cushioned.
We do have adequate liquidity, and depending on the loan growth and our resource strategy, accordingly it will be managed.
So, absolutely, on liquidity we run in a very optimised way or a very efficient way.
Mr. Sanjiv Chadha
And, just again, I think we probably come back to our previous question.
I don’t believe that this pace of loan growth is something which is likely to be sustained indefinitely, and also, I think in terms of deposit growth again, I think that’s also likely to pick up as rates get revised.
So, I think, at some point in time, we’ll find a convergence.
Moderator · Conference Operator
Sir, we will now take some questions from the Q&A chat.
The first question is – What is the value standard restructured book and how much repayment of restructured book and ECLGS book happened this quarter?
And, outlook for restructured book and ECLGS.
What percentage of restructured book is either SMA 1 or SMA 2?
And the second question is, what is the outstanding standard loan provision including standard restructured provision?
And the final question is, what is the latest outstanding ECLGS?
Mr. Sanjiv Chadha
So, Joydeep or Chand saab do you want to take it?
Otherwise, the detailed questions I think we can always provide answers in writing, because it’s a bit of complex information set that is required.
But, if there is any heads up you want to give, please do that.
Mr. Debadatta Chand
Joydeep ji, would you like to add something?
Mr. Joydeep Dutta Roy
Right now, the standard restructured book as we had said earlier, was around 17,725 crores.
And, the SMA 1 and 2 there is actually very negligible.
It’s around 0.4% of the total standard advances in percentage terms if you look at it; the SMA 1 and 2.
So, from that perspective, again, it’s not very significant.
The ECGLS book that we have currently is around, the outstanding is 10,000.
We had sanctioned around 16,000 of ECGLS book, of which around 14,000 was disbursed.
The current outstanding right now is around 10,453 crores.
Mr. Debadatta Chand
And just to add, the SMA 1 and 2 is very insignificant compared to the outstanding; very very insignificant.
Moderator · Conference Operator
Thank you sir.
Now we take the last question for the evening from Mona Khaitan.
Mona, please ask your question.
Ms. Mona Khaitan
Hi sir, good evening.
Just two clarifications.
If you could share slippages from the restructured book for each of the last 3 quarters.
And on the EBLR loans, what is the typical reset period?
Mr. Sanjiv Chadha
Chand saab, anything?
Mr. Debadatta Chand
The slippage in the restructured is only something around 18% that we have seen as an average of the past couple of quarters.
But quarter wise we’ll provide you in case you require that data.
On the EBLR reset, it is scheme driven.
So, absolutely when the scheme due date would be there, it would reset.
But the benchmark rate would pass on the moment there is a REPO rate increase happening.
So, in case, typically you’re looking at re-pricing, the re-pricing has immediately when there is a REPO rate hike.
At the same time, the reset would happen depending upon the scheme that we have announced for different schemes.
Ms. Mona Khaitan
Okay, so it’s typically T+1?
Mr. Sanjiv Chadha
Yeah.
Ms. Mona Khaitan
Okay, thank you.
Moderator · Conference Operator
Ian sir, now we request you to do the vote of thanks please.
Mr. Ian Desouza
Thank you everyone.
We’ve had an excellent set of results as usual.
Thank you for spending time.
It has been quite engaging interacting with all of you.
Looking forward to meet you again in the near future.
If you have any questions, you can reach out to me or Rakesh Shinde who is on this call, for any follow up questions.
Thank you so much.
Moderator · Conference Operator
With this, we announce the end of this quarter’s analyst meet.
Have a great weekend ahead.
Thank you. ************ Bank of Baroda Media Conference for Quarter ended 30th September, 2022
5th November 2022 · Research Analyst
Participating members from the Management Team of the Bank Mr. Sanjiv Chadha, Managing Director & CEO Mr. Debadatta Chand, Executive Director Mr. Joydeep Dutta Roy, Executive Director Mr. Ian Desouza, Chief Financial Officer (CFO)
Moderator · Conference Operator
Good afternoon everyone and welcome to the Media Conference for the Bank of Baroda’s financial results for the quarter ended 30th September, 2022.
Thank you all for joining us.
We have with us Mr. Sanjiv Chadha – Managing Director and CEO of Bank of Baroda.
He will be leading the call today and he’s also joined by the Bank’s Executive Directors and the CFO.
We’ll start with brief opening remarks by Mr. Chadha and a short presentation.
Followed by that, we’ll have the Q&A session.
Mr. Chadha, over to you.
Mr. Sanjiv Chadha
Thank you very much Phiroza and a very good afternoon to everybody.
Thank you very much for joining us.
I would have much preferred, now that things are back to normal, that we would’ve met face to face.
But, we were conscious that there’s a bit of a clash today and therefore, it may not work very well.
So, I hope we can, next time around, do a face-to-face discussion, but thanks once again for joining us.
So, I’ll just with, first of all, introducing my colleagues on the call.
We have Debadatta Chand our Executive Director who is in charge of Corporate, International and Treasury.
Mr. Joydeep Dutta Roy, Executive Director who is in charge of IT, Digital and all our platform functions, including HR.
And, of course, many of you would be familiar with Ian Desouza our CFO.
I’ll just have maybe about 6-7 slides.
We’ll again the Bank’s results in context, because I do understand that we’ve had a busy afternoon and we not have had full time to look at the results.
So, just a few slides there.
So, the Bank’s focus, again, has been as it should be, probably on 4 main themes.
One is growth.
The other is to make sure that while we have growth, we protect and improve our margins.
The third is to contain costs and the fourth is to make sure that asset quality works well for the Bank.
And, I’m pleased that in this particular quarter, all the 4 elements, which is rare, have come together, and that is responsible for the reasonably good result.
Now first of all, in terms of growth, I’m looking at the advances growth.
So, our global advances have grown by 19%.
Within that, domestic by 15% and international by 41%.
But what is equally heartening is that the growth has been well spread out over various segments, with retail, which has been a focus for the Bank for quite a few quarters, clocking a growth as high as 28% and other segments having double-digit growth.
Within retail, again, it’s a broad-based growth on personal loans, which is something that we have been pushing with BOB World over the last few quarters, growing by as much as 170%.
Auto loans has been an area of particular strength for the Bank for very many years now, and there the robust growth continues at about 30% YoY.
Education loan, again, has grown well by 23%.
But, to my mind what’s remarkable is that, home loans which are 70% of the retail portfolio and where we had pretty much system growth but not much better, have grown probably faster than the system this time by nearly 20%.
If you look at disbursements, the disbursements growth rate over last year is even more robust, which ranges between 50 to 100% in most of the segments, auguring well for the future.
Moving on to deposits now, I think it is true for most Banks that the deposit growth has lagged behind advances growth, which we believe is perfectly normal.
Whenever liquidity is abundant and economic growth is slow, you will find that deposits growth runs ahead of advances growth.
And, it is quite normal for that to be the opposite when the economy improves.
So, we are perfectly comfortable with the advances growth running a bit ahead of the deposit growth for a few quarters.
Particularly as you see in our CD ratio, while the overall CD ratio is 80%, but when it comes to domestic, it’s about 73% now, although it’s moved up by nearly 400 bps. Having said that, deposit growth is fairly okay, better than system, and we will continue to make sure that we focus on deposit growth while again, taking advantage of that window when you can actually have better margins with re-pricing of loans happening a bit faster than deposits.
So, the growth in loans and also again, the fact that deposit costs have been under a reasonable tight leash, has helped Net Interest Margins.
If you look at cost of deposits and compare the 1st half of this year with last year, you’ll find that deposit costs are exactly flat at 3.53%.
As against that, in the similar period, the yield on advances has moved on by 21 bps, which is why you see a pickup in terms of Net Interest Margins.
In terms of employee cost, that’s been an area in which our Bank has performed better than the industry.
While with some Banks you’ll find that the growth in business has come in tandem with growth in cost, for us the costs have been under tight control, particularly employee costs which have grown only by 1% in the half year, and by 2% for the quarter.
Similarly, in other operating expenses, the physical build of the Bank, the growth is, on the face of it, a little high at 17%.
But, actually this is exaggerated by the depreciation charge which is inflated because there’s a revaluation of assets which happens once in 3 years which produces a higher depreciation charge.
Otherwise, operating costs also are under control.
And overall if you combine the two, you have a single-digit growth in terms of operating expenses.
One of the focus areas for the Bank has been collection efficiency and the SMAs also, which are the lead indicator in terms of any kind of build-up of stress.
So again, the collection efficiency continues to be very high at 98%, and the SMAs, they continue to trend downwards indicating that even in terms of any kind of prognosis for the medium term, the bank is fairly well placed in terms of asset quality.
This improving asset quality is something which has been apparent for the past very many quarters, even during COVID.
But, I think that improvement has now gathered pace, and that is particularly clear in the Net NPA ratio which has now come down to 1.16%.
So, I think this is something which, to my mind, is important, because it would mean that in terms of any kind of provisioning, the Bank is well provided.
Incremental provisioning ought to be low.
The provision coverage ratio overall is about 92%, and if we were to discount the TWOs, it’s about 80%.
Similarly, slippage ratio has continued to trend downwards.
We had guided that the slippage ratio should be somewhere between 1.5 to 2%.
So, for the half year it has come at about 1.53%.
The credit costs also continue to trend downwards.
We had guided for a credit cost of between 1.25 and 1.5%.
This half year it has been significantly better; we have had very good recoveries.
But, for the full year, we would still wish to be conservative and our guiding for a credit cost between 1 to 1.25%.
In terms of profitability, it has been an outstanding quarter, with NII up 34%.
Fee income continues to grow at a reasonable pace at about 12%.
But what is significant is, that if we exclude the impact of treasury gains/losses, the core operating profit of the Bank has actually gone up by 44%.
The headline operating profit has gone up by 6%, but that’s because there is a single item which is a little bit of anomalous.
So, there was an upgrade in an account which happened and account of that there was an equity provision which moved up from below the line to above the line impacting operating profit.
But for that, even the operating profit, including after taking into account treasury, would have been about 20% growth YoY.
The profit before tax and profit after tax have moved up by about 50 to 60%.
So, I think it’s been a good quarter on top of what was actually a good quarter in the same quarter last year also.
So, with a reasonably high base, the Bank has shown about a 60% growth in terms of net profit.
It's a similar trend for the half year, where we again find robust growth in Net Interest Income, and also growth in core operating profit actually being better than the reported operating profit and PAT and PBT are up about 60%.
So, all in all, this has translated into a strong capital position.
While the capital position is about 15.25% overall capital adequacy, if you were to add back the profit that has accrued in these 6 months, the capital adequacy of the Bank is about 16%.
So, we remain well capitalised equally.
I think it is important to note that despite having robust growth in loans, the internal accruals of the Bank are enough to fund that growth.
The last point, again, would be in terms of the digitalisation of the Bank.
The fact that we have been able to grow at this pace while keeping costs under control, is largely because of the progress in the digitalisation agenda of the Bank, which has meant that increasingly customers are being serviced by digital means.
We do not have the kind of requirement that normally would have occurred in terms of increasing either the manpower or the physical build of the Bank.
We believe that this digitalisation progress that we have seen, in particularly success of BOB World, will over the next few quarters and years, continue to help us in terms of pursuing our growth agenda while keeping costs under a tight leash.
So, that was pretty much from me in terms of general remarks.
I’d be very happy to have questions from all of you now.
Moderator · Conference Operator
Ladies and gentlemen, we are now open to take questions from the participants.
I request everybody to restrict to two questions per participant.
Please unmute yourself to ask the question, or you may also type your question in the Q&A box.
We will wait for a couple of minutes for the line-up to populate.
The first question is from Saloni Shukla of ET.
Please ask your question.
Ms. Saloni Shukla
Hi sir, good afternoon.
Sir, I just wanted to understand, on this entire wedge between deposit and credit, now we are seeing Banks play catch up and a lot of Banks have raised deposit rates, which is why we have seen, especially for this quarter, Banks seeing higher margins.
Do you see that is something that will play out in the coming quarters or do you feel that margins could take a hit because now we are seeing almost on a system level, a big wedge between deposit and credit?
Mr. Sanjiv Chadha
So, it is my view that I think for maybe another quarter or two, we should again see margins being better as compared to normal, because of the lag effect which is there in terms of deposits costs going up.
Of course, eventually, deposit costs will go up, but I think equally we are likely to see the impact of the normalisation of interest rates.
The fact that, as you said, deposit growth is lagging, that would mean liquidity returns to normal, and that would also mean that pricing power in some measure returns to the bank.
So, to the extent that the margins are being exaggerated by the lag effect between advances being re-priced and deposits being re-priced, to some extent, yes, that would moderate.
But on the other hand, the upside in terms of the normalisation of liquidity and the pricing power coming back, that should also begin to assert itself.
If you look at our loan growth, you would find that the slowest loan growth is still in corporate where it is about 10%.
That is because we continue to exercise a strong discipline in terms of pricing of loans, and therefore to my mind, there’s an upside which is still there, particularly in the corporate segment in terms of better margins.
Ms. Saloni Shukla
Sir, that was my next question.
Your growth is obviously much better compared to what it was in the last quarter.
And, I know you’ve spoken multiple times in the past where you’ve said that you don’t want mispricing of loans to happen.
But, now do you see that market improving on the corporate credit?
Mr. Sanjiv Chadha
Yes indeed.
I think it is much better as compared to the previous years.
But even now I would believe that the full impact in terms of pricing power as far as corporate segment is concerned, that is still to play out, no. 1.
No. 2, if you see how the external benchmark rates have moved vis-à-vis the MCLR right, so the EBLR-linked loans have got re-priced, but the MCLR normally moves up with a lag in line with deposit growth and corporate loans are priced as per MCLR.
Therefore, in terms of corporate pricing, we have still not seen the full benefit as far as accruing to the Banks are concerned.
So, to my mind, there’s an upside and given the fact that our corporate book is about 50%, I think that should be advantageous to us as we move forward.
Ms. Saloni Shukla
Okay.
Sir, just one last question.
There is a very strong growth on the international book.
Is it one segment which is contributing to this?
Where is it coming from?
Mr. Sanjiv Chadha
So, I think, this is really an outcome of what the situation was over the last 1 ½ to 2 years, where in India, when it came to corporate loans, a) there was slow growth, and b) there was pricing pressure because of the abundant liquidity.
Therefore, we found that capital was better deployed in international corporate exposures.
Given our network, we were well placed to take advantage of that.
So, if were to see the growth in international, it is of course very high at 41%, but what is equally important is, that YoY margins also would have improved by nearly 50 bps. So, margins were south of 1.5%, now they are above 2%.
So, I think that is what is remarkable, that we have been able to have high growth along with margin improvement.
And that’s why, again we thought that capital was better allocated there.
Now, as again things normalise in India, it is quite possible again, that there might be a change in emphasis again.
But for the moment, we find good opportunities in the international book also.
Ms. Saloni Shukla
Okay, thank you sir.
Mr. Sanjiv Chadha
Thank you.
Moderator · Conference Operator
The next question is from Pinak Ghosh of the Telegraph.
He has written the question on the Q&A.
Bank has total exposure of 51,000 crores to accounts referred to NCLT.
What kind of recovery are you expecting this fiscal?
What is your view on the pace of recovery from NCLT accounts?
Do you expect write-offs to increase?
Mr. Sanjiv Chadha
Joydeep, would you want to take that?
Mr. Joydeep Dutta Roy
So in NCLT, this year we have had a recovery of almost around 950 crores in the last 2 quarters.
As compared to last year, I think it was around 2,500 and we are well poised to make almost a similar figure in the next two quarters also.
So, that’s on the NCLT accounts.
Mr. Sanjiv Chadha
Just one more point I’d add to that.
If you look at the provisions that we hold in NCLT accounts, they are well above 90%, nearly I think 98% now.
Now, historically we have seen that, on an average, you get about at least 25-30% in terms of recovery on NCLT accounts.
So, I think there’s a significant upside which is sitting there in terms of recovery, as and when that recovery comes.
Moderator · Conference Operator
Thank you sir.
The next question is from Rajesh Yadav.
Please ask your question.
Mr. Rajesh Yadav
Hello.
I have two questions.
One is, the bad loan segments are the highest in which segment, corporate, retail, MSME or individual.
Secondly, how much loan has been written off by the Bank in this segment and what would that amount be?
And, I have a personal question to you Mr. CEO.
Can I ask you a question on a personal level?
Mr. Sanjiv Chadha
What would you like to ask me on a personal level?
Mr. Rajesh Yadav
Personal level in the sense, for the ones looking to avail a loan from the branch, what kind of help would they receive if a branch doesn’t support them?
What would you like to say on that?
Mr. Sanjiv Chadha
Definitely.
I’ll try to answer both your questions.
As far as our NPAs are concerned, if we see historically, our NPAs are more in corporate.
As you all may be aware, in the last 5-7 years there’s been a considerable stress in the corporate segment.
However, that stress has reduced, and if we were to look at slippages, it is the least in corporates.
Since the impact on COVID was more on the small and medium segment, the MSME slippages have been more than expected.
So that’s as far as NPAs are concerned.
As far as taking loan from the network is concerned, our branches are available for that.
Along with that, as far as small loans are concerned, you can avail a long from the website without having to visit a branch.
If you want to take a small MSME loan, there’s a website psb59 which is for all Government banks.
You can apply through that and you’d be able to find out the status of your application too from there.
If you want to avail of an unsecured personal loan and if you’re a depositor of the Bank, then you can apply through BOB World too.
Mr. Rajesh Yadav
My second question was about how much loan has been written off.
Mr. Sanjiv Chadha
We’ll answer that to you later in writing.
Mr. Rajesh Yadav
Okay.
I had a complaint on a personal level too.
This is related to the Ghatkopar branch.
I need about Rs.
4 lakh for an education loan.
It’s been 6 months since I applied and the loan has not been disbursed yet.
Mr. Sanjiv Chadha
As far as education loans are concerned, you must have seen that our growth rate it is almost 23%.
So the Bank is doing education loans and there is quite good growth.
As far as your application is concerned, we’ll check on it.
If it’s as per our documentation and is still being delayed, then we assure you that we’d sort it out.
Moderator · Conference Operator
Thank you sir.
The next question is from Aparna Iyer.
Aparna, please unmute yourself and ask your question.
Ms. Aparna Iyer
Am I audible?
Mr. Sanjiv Chadha
Yes Aparna, you’re audible.
Ms. Aparna Iyer
Hi sir.
I wanted some colour on the corporate loan growth side.
The general discourse is that we have seen some recovery over there, but what kind of growth is being seen?
Is it still working capital?
Are capex term loans coming in, demand from capex is coming in?
How much of capex pipeline do you have?
And, if it is still largely working capital, we hear that this is mostly because companies take this working capital so that they have been seeing input cost increases and all that.
So, when those things subside, what happens to these loans?
Mr. Sanjiv Chadha
So, I think in our case, most of the growth actually has been investment led and it has come in growing cross section of segments.
For some time we have seen good growth, for instance, in the road sector, in renewable energy.
Now, increasingly again you are seeing growth in other sectors also.
What is interesting again is, that this growth is coming from relatively larger corporates because we have seen a fair bit of consolidation over the last few years, we have also seen a fair bit of deleveraging over the last few years.
So, the growth is coming from well-rated corporates, good quality growth.
As far as working capital is concerned, from our perspective, we believe that the increase in working capital utilisation is still to play out.
For us it is still in the range of about 55-60%.
I think it has not really taken off to the extent that would suggest that the growth that we have is actually volatile and is on account of the fact that commodity prices have gone up, and therefore companies need to stalk up.
To my mind, there is still upside in terms of corporate loan growth through increased working capital utilisation.
But, I would request Mr. Chand again, if he would want to amplify the point.
Mr. Debadatta Chand
Yes sir, you said right.
The growth has been, if you look at the corporate growth this time, it was around 10% and if you look at December 2021 vis-à-vis September 2021, the quarter-to-quarter growth was 6%.
We believe that this is start of the business season and a bit of utilisation happening on the working capital also.
So, we’ll be in a position to deliver similar kind of growth for the December quarter also.
And, the demand is coming across all sectors and may not be to a very large extent, but the demands are there.
We’re quite hopeful in this current scenario that we’ll be in a position to deliver a similar growth like we’ve given in September and December also.
Ms. Aparna Iyer
Okay.
So, I’m just confirming that this is not just sanctions, but also disbursals that are happening?
Mr. Debadatta Chand
I’m talking about disbursements only.
Ms. Aparna Iyer
Disbursements, okay.
Can you give us a sense of what kind of pipeline do you have on capex related?
For eg.
If today you’re giving a Rs 100 loan, how much of it is towards capex or how much of it is coming from working cap?
Mr. Debadatta Chand
See, we have term loan and working capital, typically, and term loan we give for a capex reason.
Ms. Aparna Iyer
Yeah.
Mr. Debadatta Chand
So, working capital as Sir has said that it has increased a couple of percentage vis-à-vis the last quarter in terms of utilisation.
And if I believe that this is the start of the business season and the utilisation is normally high, so we see traction out of that in the December quarter.
That would be one comfort that we’re looking for a better growth in December.
But at the same time, term loan again are all disbursed for a period of time depending upon the project cycle, the implementation time.
So, if you compare the December 2021 growth vis-à-vis September 2021 for Bank of Baroda, the quarter to quarter growth was almost 6%.
That’s a normal cyclical thing that can happen.
So, considering that, we’re quite hopeful that December also our corporate growth would be around the growth that we have given in September.
Mr. Sanjiv Chadha
Aparna, just to confirm your point, the growth that we have seen so far, largely again is project growth, more term loan growth.
As far as working capital is concerned, that is more again cyclical linked to the busy season, and we expect to see more of that in the next quarter.
Ms. Aparna Iyer
Okay, fair point.
Thank you sir.
Mr. Sanjiv Chadha
Thank you.
Moderator · Conference Operator
The next question we’ve received from Mayur Shetty of Times of India.
What is the reason for revising deposit rates through limited period special deposit scheme?
And the second question is, is there any migration from REPO linked rates to MCLR among the borrowers?
Thank you.
Mr. Sanjiv Chadha
I think in terms of deposit rates, I think the fact is, it is a changing scenario.
It is yet to stabilise in terms of where would deposit rates end up?
So therefore again, it does make sense that you are a little bit flexible in terms of the increasing deposit rates so that you can align to whatever is again the stable state in the coming months.
So therefore, I would believe that as we go through this cycle, till such time again as we reach a stable state, the growth, the change in deposit rates will be again to make sure that you’re able to attract incremental deposits, and also to align with whatever loan growth might be.
For the moment, the loan growth has been very robust this quarter.
But, I think for us to assume that that is going to be indefinitely extrapolated to the future may not be fair.
So therefore, we would want to be guarded and also calibrated in terms of deposit growth, for the moment at least.
That is what our sense is.
So that is the first part.
What was the second part of the question?
If you don’t mind, please repeat that.
Moderator · Conference Operator
Mayur is asking, how many people have migrated from REPO linked rates to MCLR among borrowers?
Mr. Sanjiv Chadha
Yeah.
So, normally the migration is more again in terms of corporates who would tend to migrate from say T-Bill rates to MCLR, because when the liquidity was abundant, a lot of corporates again, since MCLRs tend to be more sticky, they had the bargaining power to actually migrate to lower T-Bill rates.
Now, as T-Bill linked rates actually are a little more volatile, and there’s larger transmission there, now there’s a trend to migrate from those T-Bill rates to MCLR.
So, that is the movement that we have seen.
But again, I would just want to confirm my understanding with Chand saab.
Mr. Debadatta Chand
Sir, you are right.
Particularly corporate because retail loans are all EBLR or REPO rates, so there is no question of migration there.
Only corporate wherein, as a Bank we had larger segment in terms of T-Bill linked as compared to REPO.
In the same scenario currently, the percentage of T-Bill linked is less than 3.5% of the book.
So, mostly they migrated to MCLR.
So, migration we have seen, but MCLR migration from a T-Bill would be quite income positive for the bank.
So, in that way, we appreciate that kind of a movement and that would happen because of rising interests in a normal scenario that people would try to migrate to MCLR, and that happened to our portfolio also.
Moderator · Conference Operator
Thank you sir.
We have Kumud Das asking the next question.
Please ask your question.
Mr. Kumud Das
Hello, am I audible?
Mr. Sanjiv Chadha
Yes Mr. Das, you’re audible.
Mr. Kumud Das
Good evening sir.
I just wanted to know, Bank of Baroda was one of the 9 Banks who have launched the digital Rupee.
I mean, you have participated in the launch of the digital Rupee off late by RBI.
So, what has been the response?
And what according to you, are the pros and cons of the digital Rupee?
Mr. Sanjiv Chadha
My understanding is that, for the moment, what is launched is a pilot project, right?
So, therefore, we should not be talking in terms of response for the moment.
But, there is a technical capability which has been established.
That is what the current status is, but again, this was a deal which was done, the first deal was done between SBI and BOB.
So, I would request Chand saab again, if he would want to add to that.
Mr. Debadatta Chand
Sir, that’s right.
Actually, it’s a pilot thing going, so let’s wait for the time to come to gauge the response.
RBI is monitoring everything with regard to this.
So, we’ll wait for the outcome and communication from RBI on the matter.
Mr. Kumud Das
Thank you sir.
Moderator · Conference Operator
The next question is from Falaknaaz.
Please ask your question.
Falak, please ask your question.
Sir, we have received another question on the chat.
The question says – Congratulations on your record quarterly results.
Many congratulations to the management.
The question is, as per news reports and your notification to stock exchanges, IPO of insurance subsidiary is expected to hit the market by the end of this year, and that has been filed and it has filed the DRHP.
Can you elaborate upon the plans to include primary and secondary issuance proposed?
Further to that question, are you aware of any government plans to dilute their stake in the bank?
Mr. Sanjiv Chadha
I think we are aware that IndiaFirst Life has filed its DRHP.
And once the DRHP is filed, I would suppose that IndiaFirst Life is best placed to answer questions in terms of their plans.
For the moment, in terms of our own Bank, we are not aware of any plans in terms of divestment of stake by the government.
Moderator · Conference Operator
Thank you sir, thank you so much.
That was the last question that we’ll be able to take today.
Thank you all for joining us.
Thank you.
Mr. Sanjiv Chadha
Thank you. *********************