We are going to be at current level of NPA, plus/minus 10% : PS Jayakumar, Bank of Baroda

In a chat with ET Now, PS Jayakumar, MD & CEO, Bank of Baroda, says NPA has been very stable and the bank has been able to recover. Slippage numbers have also been lower than last quarter. Edited excerpts

Now numbers are looking quite upbeat. What has led to the reduction in slippages and mild reduction in your restructured asset? Do you think the trend is here to stay?

It has been generally a good quarter for us. The revenues have stayed firm despite some reduction in the balance sheet and obviously compared to same time last year, we have more assets that are classified as NPA. So that is satisfactory. As far as the slippages are concerned, the NPA has been very stable, we have been able to recover and slippage numbers have also been lower than last quarter.

The guidance numbers that we have provided marked for a potential slippage of about Rs 15,000 crore and a recovery upgradation of about Rs 10,000 crore. Half way into the year, we are less than half way as far as slippages are concerned and more than half way, as far as recoveries are concerned. So there is some elbow room with respect to what has been an earlier guidance.

However, we are also working hard and are hopeful that the actual NPA number would be at the lower end of our guidance. We had indicated Rs 45,000-50,000 crore of NPA and now I think we can work towards the number being at the lower end of that guidance.

In so far as other areas are concerned, our sale of non-core assets is not going to be the level we projected. We have made good progress with respect to the core business to cover that. Our operating profit will therefore be the same. We do expect to stay within the forecast return on equity of around 6%.

You do have high exposure to stress sectors – infra, metals. Do you see any improvement here?

We are looking at a provision coverage of about 65% through the NPAs as of the end of this financial year March 2017. As of now, we are at 63%. We are somewhat better placed in terms of accomplishing the provision numbers. But in the third and the fourth quarter on account of the AQR and variety of other reasons, there was a sharp spike in the NPA and there is some effect of what is called as an aging provision taking place. In summary, we are going to be at the current level of NPA, maybe a little bit around plus/minus 10% there and that is how it is looking.

Our coverage ratios are looking good and in fact, this quarter we have taken a little bit more than what is required by direct norm to take into account or kind of even out the effect of the aging provision for the next quarter.

What will be the impact of demonetisation on CASA, the deposit growth and overall economic activity?

Well the demonetisation obviously has impacts on multiple ways and in the immediate term if you look at the last two days or working we have had, we have receipt of about Rs 12,000 crore and a savings account balance sheet grown by about Rs 9500 crore which roughly on a basis of about 7% base level.

Remember, people have still not started drawing down the money that will take place once the ATMs stabilise and the cash in the system starts improving. So we have to see how it plays out. But in general, the overall view is that there would be a balance sheet growth depending upon the numbers anything from Rs 10 lakh crore to Rs 16.8 lakh crore. If we were to project that in relation to the market share of the deposits we have, saving accounts and current account balances should go by about Rs 30,000 crore to Rs 40,000 crore.

Do you see demonetisation impacting interest rates and how do you see margins over the next couple of quarters?

As far as interest rate is concerned, it is going to play in a multiple way. On one hand, our cost of fund is going to come down.On the other hand, we should expect interest rate reduction in the overall economy as a consequence of which the spreads on the asset side would also come off but in general in a declining environment situation or an anticipated declining rate interest environment, we have to balance our portfolio, the asset-liability mismatch in such a manner that the reduction in the interest rate would have positive effect.

We have positioned the books quite well and therefore at least in the near term, the margins should either get protected or expand.