Bank Of Baroda’s New Chief Sees Merger Pain Abating In FY21
The current macroeconomic climate is making loan growth difficult, said CEO Sanjiv Chadha.
Bank of Baroda, India’s second-largest public sector lender, saw its loan book grow by less than 1 percent year-on-year in the quarter ended Dec. 31, 2019, well below the 7-8 percent growth in banking sector credit.
As the bank moves ahead with a new CEO at the helm, it aims to tap into new growth opportunities evolving in the economy. According to Sanjiv Chadha, MD & CEO, Bank of Baroda, the lender will look at growing more aggressively and will focus on corporate loans as well as unsecured lending.
Chadha, whose appointment was announced just a week ago, explained that the corporate loan books of the three banks are now completely merged and are operating on the same technology platform. This should allow the bank to begin growing its loan book once again while maintaining control over asset quality.
The slow loan growth reported by Bank of Baroda comes despite the government’s decision to front-load capital infusion into PSU banks. By doing this, the government was hoping to see these lenders restart the flow of credit to the economy.
According to Chadha, banks in the current macroeconomic climate will have to look at emerging opportunities to grow.
“In so many ways, the structure of the economy has also been changing and banks need to realign their processes, structures, and emphasis on the basis of the new opportunities that might be coming their way,” Chadha said.
While the bank’s overall loan book was stagnant, it did see strong growth in its auto financing and unsecured lending portfolios. Chadha expects this to continue and believes that the bank can also find growth opportunities in corporate lending at a time when most lenders are cautious.
New Leader, New Focus?
Chadha took over the leadership of the bank from PS Jayakumar, whose term ended in October 2019. Prior to joining Bank of Baroda, Chadha headed SBI Capital Markets for a year.
Jayakumar was one of the two private sector bankers who had been appointed at public sector banks in 2015, with the intention to overhaul the governance standards and bringing in faster growth. His term, however, coincided with the Reserve Bank of India’s asset quality review, which led to large scale recognition of bad loans and high provisioning.
The clean-up and the sudden announcement of a three-way merger led to significant under-performance of the Bank of Baroda stock.
Chadha hopes to see the bank return to a focus on growth in the quarter ahead.
The bank will look to grow its unsecured retail lending portfolio, as it tries to expand the services it offers to its existing customer base, he said. The bank has not seen any major stress in its unsecured lending book so far.
The bank will also focus coordination with non-banking finance companies, as a way to boost credit growth. In the third quarter, the bank saw a drop in securitisation transactions as it tightened scrutiny on the quality of loan portfolios.
"Securitisation and pool buyouts are an important way for banks to engage with NBFCs. But it is surely not the only way that we can work together. We will engage with the NBFC sector closely and ensure that we push up credit growth,” Chadha said.
The bank’s total exposure to NBFCs stood at Rs 1.03 lakh crore as on December 31, with more than 45 percent outstanding loans to AAA rated companies.
In the October-December quarter, Bank of Baroda reported a Rs 1,407 crore net loss, due to the large divergence in bad loan classification detected by the regulator. The RBI noted a gross non-performing asset divergence of Rs 5,250 crore in the last financial year. This pushed up quarterly slippages to over Rs 10,000 crore for Bank of Baroda as it marked down the loans that had not been classified appropriately.
“While it is not possible to fully remove divergence, we will try to minimise the impact it has on our book,” said Chadha.
(Updates an earlier version that incorrectly quoted Chadha as saying that the Bank of Baroda’s merger with its two public sector peers and difficult macroeconomic climate impacted growth).