Welcome back to our Earnings Central. At a time when many banks, as we just saw, are struggling with asset quality and high slippages — especially unsecured — Bank of Baroda has actually reported about the best asset quality in a decade. The loan growth at 11.6% is a little slower than peers like ICICI Bank and HDFC Bank, but let's discuss the fine print. Joining me now is the Managing Director and CEO of the bank, Mr. Debadatta Chand. Good morning, and thank you very much indeed for joining us.
Well, let me start with the asset quality, which is quite stunning. The slippages are, I think, the lowest in three quarters. Can you tell us the breakup? Where did you see any pain in unsecured, for instance?
No, the asset quality as you see is actually one of the best quarters we have had. Particularly, there has been a good recovery out of NCLT accounts, which also supported the other income. In terms of slippage, our normal run rate is roughly around 2,700 to 2,800 crore per quarter, and if you look at the last two quarters, the slippage has been almost at the same level. About 70 to 80 percent of the slippage would be accounts less than 5 crore. So in terms of the quality of the book and the fresh slippage, I don't think we'll exceed the run rate going forward. As far as unsecured personal loans are concerned, as I said when I met the market in September 2023, we clearly said we're going to moderate the growth on unsecured personal loans, and that has had a positive impact in terms of fresh slippage. The fresh slippage this quarter is hardly around 200 crore out of unsecured personal loans. But let me again tell you that the book has been much better as compared to the book we had earlier, so I'm not anticipating any elevated slippage out of the unsecured personal loan book. Even if so, it will be very insignificant for my book as a whole.
That's good to hear. But you just referred to recoveries — can you give us an idea of what was the recovery and what is the expectation for the full year?
If you look at the recovery of written-off accounts that we have given for this quarter, our normal run rate is something around 750 to 800 crore, and this quarter is almost like 2,500 crore because we got recovery from a couple of good accounts, one of which was particularly in the NCLT framework. In that scenario, if you look at the normal run rate, we are fairly looking at the GNPA trending downwards for the last many quarters now. The net NPA position is improving. We are giving two ratios on the asset quality which are again coming true quarter to quarter. One is a slippage ratio — we want to maintain the slippage ratio between 1 to 1.25. At the same time, the credit cost that we said we'll maintain below 75 basis points, and this quarter is at 65. So fairly, if you look at the parameters of the asset quality, we are fairly balanced. A normalized kind of slippage and a normalized kind of recovery would continue to be there for the book.
No, I take all that. I'm just saying since the recoveries have been stunning, is there a number you can guide for the full year, since you still have a lot of NCLT accounts?
We anticipate to have a recovery target of 12,000 crore for the full year, and at the same time containing the slippage somewhere around 9,000 to 10,000 crore for the full year.
Okay, that's good to hear. So in net-net, you are gaining. Let me come to the interest margin. Your deposits have obviously been slower, at less than 10%, 9.9% odd. Do you see that margins can still be under pressure? Are you expecting that deposit cost can still rise?
Let me give the full context. We had given a deposit guidance of 10 to 12% earlier, and in Q1 and Q2 the growth has been lower, obviously. So we've calibrated the deposit growth to 9 to 11% now, and consequently we revised the advance growth also from earlier 12 to 14% to 11 to 13%. The precise reason for this is with regard to how to maintain the margin therein. If you look at the margin that we have achieved this quarter, it is 3.10%, which is the lower band of 3.15 plus or minus 5 basis points, even if the impact of the penal interest and charges has been almost 5 basis points. In a scenario like that, our effort to maintain the margin going forward is the key primary objective that we are pursuing by doing a trade-off between growth and margin. So we continue to maintain the same margin guidance of 3.15 plus or minus 5 basis points. And I think the kind of asset-liability management we have, we can still maintain that. Saying so, there are two assumptions that we've focused on going forward. As you see, globally there has been moderation happening on asset pricing and also liability pricing. India, I think it has started now in terms of the regulator changing the stance. Now the system liquidity is better month to month as compared to the earlier months. In that scenario, we still expect some kind of moderation on the cost of deposits, maybe towards the late Q3 or the early Q4. And if that happens, I think we'll be in a position to maintain the margin guidance of 3.15 plus or minus 5 basis points.
At 3.15 you will actually do better than what you have done in the second quarter. But right now in the third quarter deposit costs are still higher. I mean, are you likely to pay a little more? Can they increase even from current levels?
To my view, that may not be the scenario. I think as far as the economy is concerned, the deposit rates have peaked out. Many of the banks are running the festive campaign, and post-festive campaign, I believe there will be moderation in the cost, particularly in the peak rate side of the deposit.
That's good to hear, at least from a bank's point of view. But what is your percentage of loans tied to EBLR? Because if the rates indeed get cut, then there can be a problem for banks, at least for a brief period. What is your bank's percentage of loans tied to external benchmarks?
