‘We believe liquidity scenario should change in next few months’

That was the one-off which I believe should now start changing, and we should be getting back to normal operations in terms of how people behave, given their credit scores.

Bank of Baroda’s (BoB) decision 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, many small borrowers have a good track record and will soon resume good credit behaviour, he adds. Excerpts:

Your loan book has shrunk in Q1FY22. What is the outlook for the full year?

We have held a view that we would want to grow in areas which give us a positive risk-return. Given the fact that there’s abundance of liquidity and pricing is under pressure on the corporate side, we have focused on growth on the retail side. It is risk-mitigated to the extent possible in these uncertain times. So, we have had reasonably good credit growth in those areas. Our organic retail growth is about 12%. Within that, we have had about 25% growth in car loans.

Gold loans have done very well for us; they have grown 35%. The only reason that growth was subdued in this quarter was that we allowed some cheaply-priced corporate loans to run off because we believe that the liquidity scenario should start changing over the next few months. There is an opportunity to price corporate loans in a slightly better manner as compared to what was possible in the last 12 months. In the areas where we want to grow, we have grown at a reasonably good pace.

Where do you see credit growth for the rest of the year?

We have pretty much run down the loans where the margins were low. With that base, we should see corporate growth happening on a net basis from the next quarter onwards. We are seeing a fair bit of activity, particularly in the roads sector, on the corporate side as also in terms of city gas projects and renewable energy. Brownfield expansion is something we are seeing. On the retail side, we have some strong franchises, which should continue to grow, especially now that lockdowns are getting lifted. Our own sense is that we should see growth of about 7-10% for the industry this year, and our growth should pretty much be in line.

Most slippages for you have come from the MSME, retail and agri books. Was it a problem of collections or is there financial distress?

It was a bit of both. There is no argument that the retail segment and the MSME segment have been affected by the second wave in particular. The MSME sector was anyway under stress for the last one year, but the retail sector, which had still got through the first wave because there was a moratorium, was pretty badly impacted by the second wave. A lot of personal finances got upset by the second wave because I think there was hardly a family where there weren’t any Covid-related expenses amongst our borrowers.

Having said that, this was more of a one-off, you might argue. While the MSME challenge is a little more, because 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, very few people looked at restructuring. This year, people have been impacted, loans have been restructured, some have slipped, but at the same time, in July, there is a fair bit of pullback that’s happening. My own sense is that both for MSME and retail, the kind of slippages we saw in the last quarter was peak distress, and that should start diminishing over the next few quarters, while the improvement we have seen in the credit cycle for corporates should continue. So for us, credit costs have come down as compared to last year simply because the corporate improvement has offset the challenges in retail and MSME.

Have you felt the need to tighten credit filters in the small loan segments?

Not really, for the reason that we actually have had fairly robust filters. In retail, our underwriting is mostly for borrowers who have credit scores of 700+. Seventy percent are 725+. But, in the last few months, even if you are somebody who has never defaulted on a loan and you have a 725+ credit score, the kind of health expenditure that happened was totally out of character and out of context, as compared to what your past credit record was. That was the one-off which I believe should now start changing, and we should be getting back to normal operations in terms of how people behave, given their credit scores.