Debadatta Chand, MD & CEO, Bank of Baroda expects that there will be a marginal rise in the cost of deposits in the coming quarter. He tells Christina Titus and Abhijit Lele that while there is no immediate stress in the loan book, the bank remains watchful of potential risks to the real economy, particularly the agriculture sector. Excepts:
What gives you confidence to raise credit and deposit growth guidance?
We have seen strong growth in both deposits and advances this quarter. Typically, June and September are usually slower for the bank and December and March stronger. The demand in RAM segment remains robust, growing at about 18–20%. Corporate loan growth was slower in Q2 as we avoided assets with unattractive pricing amid changing interest rates, but we have a strong corporate pipeline.
With corporate growth expected at around 10% and RAM at 18–20%, we are confident of achieving our 13–15% overall growth guidance, supported by market conditions and our competitive advantage.
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On deposits, funds that previously flowed into capital markets are now gradually returning to the banking system. CASA growth exceeded 10% in both June and September, while term-deposit growth has historically been stronger. This positions us well for a healthy deposit outlook.
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How are you deploying the FCNR(B) funds currently held as surplus liquidity, and how do you expect these investments to generate returns?
The timing of FCNR (B) inflows is favourable because yields in both government securities and corporate bonds are higher than these deposit rates. This allows us to invest the funds at a spread and that can be liquidated at any time or money can be generated against that through repo window.
We reduced bulk deposits by about Rs 9,000–10,000 crore, and the balance of the Rs 77,000 crore (FCNR deposits) is available in various forms. So, we have enough liquidity and expect deployment by March.
What is your outlook on margins?
We guided for a margin of 2.75–2.95%. With 38% of the loan book repo-linked, it was repriced 25 basis points higher following the October 5 repo hike, while our non-MCLR corporate loans under T-Bill and G-sec were also repriced upward. Given that rising rates generally support margins, our Q3 outlook is much better.
When do you expect deposit repricing, given surplus liquidity?
We garnered $8 billion under the FCNR (B) scheme, so our position differs from other banks. As significant liquidity has been absorbed from the system and we are getting into busy season, deposit repricing for system may happen at a higher level. We have not done repricing as of now. If market rates remain elevated, we will have to gradually align our deposit rates depending on our liquidity requirements. This could lead to a marginal increase in the cost of deposits from the current quarter.
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Do you see any impact on your portfolio due to deficit monsoon and drought situations in some states?
Asset quality has improved with better collection efficiency, lower fresh slippages and stronger recoveries. While there is no immediate stress in the loan book, we remain watchful of potential risks to the real economy, particularly the agriculture sector.
Are you taking a cautious approach towards the gold loan portfolio?
Retail gold loan growth remains subdued, with year-to-date growth in negative territory. So we are just looking at how to structure the portfolio. There is a lot of discussion happening on the gold loan space. We are not seeing the retail gold loan stress that continues to be pristine. As there is a discussion happening in the system, we are growing slower on that segment.
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This article was first uploaded on October thirty-one, twenty twenty-six, at thirty-six minutes past six in the morning.
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