Bank of Baroda’s (BoB) choice to consciously run down some low-margin loans resulted in its loan book shrinking in Q1FY22, MD & CEO Sanjiv Chadha tells Shritama Bose. While retail repayments have been hit by the second wave of Covid, a lot of tiny borrowers have a very good track record and will quickly resume very good credit behaviour, he adds. Excerpts:
Your loan book has shrunk in Q1FY22. What is the outlook for the complete year?
We have held a view that we would want to develop in regions which give us a positive danger-return. Given the truth that there’s abundance of liquidity and pricing is below stress on the corporate side, we have focused on development on the retail side. It is danger-mitigated to the extent probable in these uncertain occasions. So, we have had reasonably very good credit development in these regions. Our organic retail development is about 12%. Within that, we have had about 25% development in auto loans.
Gold loans have performed quite properly for us they have grown 35%. The only purpose that development was subdued in this quarter was that we permitted some cheaply-priced corporate loans to run off due to the fact we think that the liquidity situation ought to begin altering more than the next handful of months. There is an chance to value corporate loans in a slightly superior manner as compared to what was probable in the last 12 months. In the regions exactly where we want to develop, we have grown at a reasonably very good pace.
Where do you see credit development for the rest of the year?
We have fairly significantly run down the loans exactly where the margins had been low. With that base, we ought to see corporate development taking place on a net basis from the next quarter onwards. We are seeing a fair bit of activity, especially in the roads sector, on the corporate side as also in terms of city gas projects and renewable power. Brownfield expansion is anything we are seeing. On the retail side, we have some sturdy franchises, which ought to continue to develop, in particular now that lockdowns are finding lifted. Our personal sense is that we ought to see development of about 7-10% for the market this year, and our development ought to fairly significantly be in line.
Most slippages for you have come from the MSME, retail and agri books. Was it a issue of collections or is there economic distress?
It was a bit of each. There is no argument that the retail segment and the MSME segment have been impacted by the second wave in distinct. The MSME sector was anyway below pressure for the last one year, but the retail sector, which had nevertheless got by way of the 1st wave due to the fact there was a moratorium, was fairly badly impacted by the second wave. A lot of private finances got upset by the second wave due to the fact I feel there was hardly a family exactly where there weren’t any Covid-associated costs amongst our borrowers.
Having mentioned that, this was more of a one-off, you may possibly argue. While the MSME challenge is a small more, due to the fact for the last one year, MSMEs have been impacted by lockdowns and demand disruption, for the retail sector it is more of a one-off. Last year, quite handful of folks looked at restructuring. This year, folks have been impacted, loans have been restructured, some have slipped, but at the very same time, in July, there is a fair bit of pullback that is taking place. My personal sense is that each for MSME and retail, the sort of slippages we saw in the last quarter was peak distress, and that ought to begin diminishing more than the next handful of quarters, although the improvement we have seen in the credit cycle for corporates ought to continue. So for us, credit expenses have come down as compared to last year merely due to the fact the corporate improvement has offset the challenges in retail and MSME.
Have you felt the want to tighten credit filters in the tiny loan segments?
Not actually, for the purpose that we in fact have had relatively robust filters. In retail, our underwriting is mainly for borrowers who have credit scores of 700+. Seventy % are 725+. But, in the last handful of months, even if you are somebody who has under no circumstances defaulted on a loan and you have a 725+ credit score, the sort of wellness expenditure that occurred was completely out of character and out of context, as compared to what your previous credit record was. That was the one-off which I think ought to now begin altering, and we ought to be finding back to typical operations in terms of how folks behave, offered their credit scores.