Rebalancing the loan portfolio, exercising caution in lending, and grooming the middle management to take up higher responsibilities are the main focus of Bank of Baroda Chairman and Managing Director S.S. Mundra.
Mundra, who took charge of BoB in January, has hit the ground running, placing premium on continuity in the bank but remaining contemporary at the same time. In an interaction with Business Line , Mundra, who started his career as a probationary officer in Bank of Baroda in 1977, says that given the pressure on asset quality (bad loans increased from Rs 4,465 crore as of March-end 2012 to Rs 7,321 crore as of December-end 2013), his bank is on a mission to improve the same. Excerpts from the interaction:
Premium on continuity
I have a relatively short tenure (of 19 months at the helm of Bank of Baroda). As I’m from this bank I hit the ground running. My bank has been doing consistently well over a period of time. When it comes to all key performance parameters, whether it is the business, gross non-performing assets (NPA), net NPA, net interest margin and profitability, our bank stands head and shoulders above the peer group.
Of course, when there is so much stress in the economy, you cannot totally remain unaffected. It is bound to have some impact on you.
But my personal philosophy is that with all this background, I would like to put a lot of premium on continuity. If you have not been performing well consistently then there is a reason for you to consider changes (in the functioning of the organisation). But when the bank has been doing quiet well then there is no need for change. I don’t believe in change for the sake of change. My basic underlying philosophy is premium on continuity but to remain contemporary. So, slight course correction is needed, and some re-balancing between the portfolios is needed, these need to be undertaken.
Portfolio rebalancing
Our bank has a fairly good balance between domestic business (accounts for 70 per cent of the global business — deposits plus advances — of Rs 7,14,051 crore as at December-end 2012) and overseas business (30 per cent of global business); our overseas business contributes 25 per cent to our bottomline.
In the domestic business (of Rs 4,96,595 crore), we have a fairly good presence in all the four segments — corporate banking, mid- and small and medium enterprises (SME), retail and agriculture. But as of today, our domestic loan portfolio (of Rs 2,01,208 crore) is slightly leaning towards the corporate segment.
In the backdrop of the current economic situation and from the perspective of spreading the risk better and deriving wholesome value from our loan portfolio, I feel that our loan portfolio composition, in percentage terms, should slightly move in favour of retail, SME and agriculture.
This doesn’t mean that corporate loans will not happen (they will continue to grow), but if I have to bring some course correction in terms of percentage it means that retail, SME and agriculture loans have to grow at a rate slightly higher than corporate loans.
Currently, corporate credit constitutes about 45 per cent of the overall loan portfolio; agriculture 15-16 per cent; retail 14-15 per cent; and SME 22-23 per cent. If there is a differentiated growth between corporate credit and other loan segments, rebalancing will gradually happen.
As of today, if I am looking at a credit growth of, let’s say, 18 per cent or so in FY14, my endeavour would be for retail, SME and agriculture portfolio to grow at 22 per cent plus. This would automatically bring a little bit of re-balancing.
Caution, the watchword
When it comes to lending, caution is being exercised in the sectors (like infrastructure) where policy issues are yet to be resolved. Earlier, it was assumed that these things (delays in getting statutory approvals) are normal but they (approvals) will be in place and you (banks) need not wait for them. But today, having seen that they (approvals) are not always coming on time, one would like to be very clear that everything is in place beforehand. You can’t start committing funds in anticipation of a few things happening. This we have learnt from experience and hence the caution.
Focus areas
International business will continue to grow. But within the international business, as of today, almost 50 per cent of the credit is predominantly in the form of short-term credit. While this is good, the margins are relatively lower.
As we enter into the next fiscal, with more signs of stability showing up in the domestic as well as global economy, I would like to slightly change the composition of international credit. I may enhance the percentage of our long-term credit to some extent while not growing the overall size very aggressively. A little bit of shift towards long-term credit will give us better profitability from the international operations.
Another important requirement and initiative is on the Human Resources (HR) front.
In the coming two-three years, HR is going to be a big issue for public sector banks. By 2016-17, in the senior three layers of management — General Manager, Deputy General Manager and Assistant General Manager — I think between 50 to 80 per cent would be superannuating.
So, it is very important that you keep your middle management strong, identify the people, and groom them so that they are ready to take up higher responsibilities. This is to ensure that there is no management vacuum in the organisation. So, HR would remain a focus area.
The other priority is the asset quality. I have asked our bank to be on mission mode so that our asset quality, our recovery processes, our early warning signal detection processes are all further streamlined and become more efficient so that you don’t start correcting a situation when it is late. Rather do it in good time. In the December quarter, we have seen pressure on asset quality. It had already started becoming visible in June to some extent and in September to some extent. So, when we see that there is a trend (rising bad loans), I think it is wiser for any management to spot the trend and start action.
NPAs and restructured assets
Of late, the non-performing assets (NPAs) are more visible in the corporate segment. Obviously, if there is stress in the economy, SMEs would be affected. So, in the SME segment, the NPAs keep on coming. The remaining NPAs are from the mid-corporate segment. Retail is not seeing much incremental NPAs.
Restructuring is mostly from the large corporate and to some extent from the mid-corporate segments.
NPAs and restructuring are not sector-specific. Restructuring is now more account-specific.
The time has come in our system to start differentiating between NPA on account of financial reasons and NPA on account of policy and technical reasons. As I see, some of the reasons that will lead to more restructuring will be due to policy bottlenecks or delays in the commercial operations date.
So, if these things are corrected — lot of policy measures have already been announced — then probably things will start looking up. But as I indicated during our Q3 results, I still see at least a couple of quarters of pain in terms of NPAs and restructuring.