‘We will grow our loan book by 7-10% in FY22’ : Rashtra News
#grow #loan #book #FY22
Bank of Baroda (BoB) is on track to clock credit growth between 7-10% in FY22 and expects to grow in double digits in FY23, MD & CEO Sanjiv Chadha tells Shritama Bose. At the same time, the bank remains focused on growing its margins by pricing loans better and strengthening its current account savings account (CASA) franchise, he said. Excerpts:
Bank of Baroda (BoB) is on track to clock credit growth between 7-10% in FY22 and expects to grow in double digits in FY23, MD & CEO Sanjiv Chadha tells Shritama Bose. At the same time, the bank remains focused on growing its margins by pricing loans better and strengthening its current account savings account (CASA) franchise, he said. Excerpts:
Your net interest income (NII) has grown in double digits. How has Q3 been from the perspective of pricing power?
There’s no doubt that there are challenges in terms of pricing, particularly on the corporate loan book, which has also affected the tepid growth we have seen on the corporate side, to some extent — not so much q-o-q (quarter-on-quarter) but y-o-y (year-on-year). But, we have tried to counterbalance that pressure by making sure that we keep a tight discipline on loan pricing, which is why you’ll find that there is a very marginal decline in our yields on loans between last and this year, but more so by keeping a discipline on the liability side. We are making sure that the growth in deposits is in line with credit growth. No point getting a deposit at 5.5-6% and then parking it at 3.5%. That’s one part.
The second part is the composition of the liability growth. It has come almost entirely by way of CASA, which means liabilities have mostly been in the 2.5-3% range. That has meant that every quarter, our cost of deposits has come down. That is what has helped our margins, and our NIM has improved from 2.77% to 3.13% y-o-y. So for us, it has been a fairly good story in terms of making sure our margins remain intact and also improve to the extent that they can. That’s what has helped the NII growth despite loan growth being moderate at best.
How do you see deposit costs panning out in the months ahead, given the way rates are behaving?
There are two-three ways to look at it. One is of course the broader proposition that as interest rates normalise over the medium term, deposit costs will go up. But there is always a lag effect, which means the asset book gets repriced faster and the liability book follows. It’s the other way round when interest rates are falling. The other part is that there are still significant banks who have a fair bit of surplus liquidity, where the CD (credit-deposit) ratio is below 70%. So there’s a fair bit of liquidity in the system which will determine when the rates actually start rising in a more significant manner. Third, on our own part, we have used this opportunity to grow our CASA book. It has grown 12% y-o-y and our CASA ratio has moved up by 300 basis points. Even when deposit rates start rising, the book which is low-cost for us now is significantly higher than where it was two years ago. From 37% it has risen to over 44%. Therefore, we are in a reasonable position where we can say that while there may be a secular uptrend in the offing, it may be some time before it gets reflected in elevated deposit costs.
Where do you see credit growth for the full year?
For the current year, we have been guiding that we would be growing 7-10%. Our stance has been that we will grow roughly in line with the industry while focusing on our margins, keeping them intact or improving them. That’s what we have been able to broadly achieve. We had a tough first quarter because our staff was badly impacted by the second wave of Covid-19. We have seen a good pick-up the second quarter onwards, and in the third quarter it’s been even better. We expect to finish this year within the range we have guided, and next year we should have double-digit loan growth pretty certainly.
Q3 seems to have been a bad one for non-interest income across banks.Why is that?
Q3 has been fairly good for us in terms of fee income, which has grown 15% y-o-y. What has been a challenge is the treasury income, and that is par for the course. Whenever interest rates rise, you will see loans contributing more by way of NII and the treasury income, which earlier compensated for poor loan growth and margins, will go away. There has been a 50% fall in terms of treasury gains. Going ahead, even those gains are likely to go away. But that will get compensated in the short to medium term by way of better NII and loan growth.
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( News Source :Except for the headline, this story has not been edited by Rashtra News staff and is published from a www.financialexpress.com feed.)
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