BoB could rake 3000 cr on sale of investments in NSE, UTI Asset Management & CCI: CEO PS Jayakumar

Only a few years back BoB was talked of as one of the best-run banks. Even in 2015-16 until the second quarter, the bank was reporting profits. And then suddenly, post the asset quality review (AQR) by the Reserve Bank of India (RBI), the bank went into deep losses. Was there some window dressing happening?

I don't know what happened in 2004 and 2005 because I was not there. So when I ask people to replay what happened at that point in time, the sense I get is that the environment at that time was optimistic. Decisions looked very sensible at that point of time. Most loans were dispersed during the peak time of 2008-09. The projects were getting implemented. Issues of administrative clearances, raw material linkages and the environment that created this mess. The large borrowers who were having the loan facilities from multiple banks found it impossible to meet the debt obligations with some of their financiers. The RBI also took a systemic view to see what were the actual cash flows with these companies and how some of these accounts were stressed in multiple banks. We had information of our account details. But as a regulator, they had a bird's view of the accounts and how they were performing with multiple banks. And they came up with a list that in a way forced many banks to convert their standard accounts also to NPAs because it was stressed with some other bank. Half of the AQR list with us was a performing list.

So are you saying that the ills of the other banks came upon you?

No, I meant that AQR was flushing out the system. The AQR exercise helped us to front-load the diagnostics. It may have become an NPA at a later date, and it became NPA now. So front-loading the NPA only means that the problem recognition happened much earlier. They harmonised the provisioning code and made it more effective. So if it was an NPA with one bank, then others also had to recognise the stress. Now the diagnostics are in place and we will move forward on a stronger balance-sheet.

But now the trend seems to be reversing. Upgrades of loan accounts and recoveries are rising despite the economic environment remaining where it was?

The economic scenario not improving does not mean that balance-sheets of all the companies will be stressed. The ports sector is smiling, road sector is reviving. I don't think you can use a broad brush and say that large-scale upgradations should not happen. It is very specific to companies. There are people putting in equity. So it is a dynamic environment. For an NPA account to get upgraded what you need to do is overdue has to be paid. So a Rs 100 repayment of overdue gives a Rs 1,000 of upgrades. A chunky EPC account of Rs 600 crore has fallen off from the restructured book to the NPA category since it missed some repayments schedule as per the restructuring norms prescribed by the RBI. Large companies are leading the upgrades. In the last quarter, we have written off Rs 1,142 crore. These are all technical write-offs, for which a resolution process is underway.

So you are now confident that five years hence an AQR would not lead to any ugly surprises?

We don't know if there will be an AQR exercise.

So you are confident there will be no AQR in future?

No, I am not saying that but an extraordinary stress situation can happen in any market. I think from what it looks like, there are a couple of things that are happening. Borrowers are moving cautiously and trying not to leverage. So systemic changes are happening. So these kinds of problems should not repeat. The odds are low is all I would say.

So are your loan contracts looking different now? Do borrowers have more skin in the game now?

Some changes have happened due to change in regulations. Today, we have to incorporate clauses in anticipation of the bankruptcy provisioning. It is not to say that earlier documents were dumb. From our side, we are making the interest rate move in relation to the credit rating. So if the rating deteriorates, the pricing increases and if rating improves, the pricing reduces. We make enabling provisions and making them clear to the client. Non-submission of forms would attract higher rates. So, we are putting a lot of incentives and disincentives for the borrowers. So if stock statements are not given or some agreed upon covenants are not adhered to, it will impact the pricing. I would say that overall everyone is getting more careful, including borrowers who do not want to be over leveraged. These are evolving scenarios.

So on hindsight, the bank is wiser now than before?

Obviously, there is a learning. There are learnings that are going into our training material, so we are changing the way employees are also trained. New case studies are happening. One is pricing which is dependent on the ratings and these ratings are obviously external or borrowers may think the bank is tinkering with rates to jack up rates. There are more logical and transparent ways of doing it. We are giving lesser loan accounts to an officer so he is not burdened. From a geographic organisation, it has become a specialised organisation. Top-rated corporate lawyers are reviewing our loan contracts and they review and suggest changes.

In June 2016, Bank of Baroda made news when two accounts of a 52-year old marginal farmer from UP were attached mistaking him for a guarantor for a Vijay Mallya loan. How could this happen?

Customer service issues can crop up anywhere. The two accounts were cleared much before the media took it up. The customer signed off with us and said he was satisfied with us and there was a closure. The issue was closed after apologies were sent out. Subsequently, a lot of things happened. These are large organisational errors that should not have happened. The right thing to do is to say "sorry", fix the system and move on. It is regrettable.

What is the update on the Rs 6,000 crore forex scam reported from the bank's New Delhi branch?

There is no scam. Why are you calling it a scam? It is a media term, isn't it? Does it imply that the bank was involved in the scam? The bank was the first to disclose that there was a problem. It happened because of some control lapses. So it was not the bank that had actively participated in doing something. Maybe two or three officers of the bank were involved. There were control failures and we have fixed the system.

Where did the profit come from, during the quarter, as the environment continues to be challenging?

Our treasury income held up very well at Rs 557 crore as against Rs 157 crore in the year-ago period. The bond yields came down substantially, but that is not to say that profits would hinge on treasury income alone. The robust growth in the net interest income, decline in the operating expenses also aided us in demonstrating a strong performance on the operating profit front. The other income grew by 49.3% over the previous year to Rs 1,440 crore by monetising the excess statutory liquidity ratio. We sold off the shareholding in CIBIL for Rs 120 crore. So a combined impact drove the profit.

Will sale of non-core assets be a strategy to boost profits?

Sell-off in non-core assets will also be a strategy going forward. Many of our investments have appreciated substantially. We will look at offloading them when the pricing is good. Some of our substantial shareholdings in the National Stock Exchange, UTI Asset Management and Clearing Corporation of India, where original investments were made for some purpose and it has appreciated and matured, can be sold off if the pricing is suitable. We expect to rake in more than Rs 3,000 crore just on the sale of these three investments. Our investment in UTI alone would have a value of Rs 1,500-2,000 crore. When the listing happens, it will be much higher. I think a majority of the shareholders have agreed for a listing. The price discovery will be much higher for the bank. We have some smaller investments too.

What will be the strategy of the bank going forward?

In the international book, for low-yielding large buyers credit advances will be run down. In the first quarter, for example, we have run down Rs 9,680 crore of buyers' credit from our international book, while the domestic advances have grown at 1.64% on a sequential basis, re-balancing the low-yielding advances. From December onwards, there is no build up on our balance-sheet. We have retired preferential rate bulk deposits of Rs 25,500 crore in 2015-16 or repriced at the card rate. It will be down and we are bringing it down further. Our interest costs have come down by Rs 600 crore in one quarter. We are only going after loans that are investments.

Your commercial real estate exposure is quite high at Rs 9,000 crore. Will this be a focus to grow the high-yielding advances?

We would like to contract high-yielding advances but not by focusing on any one sector. Commercial real estate is anyway not one of the 7 top stressed sectors of the bank. So from the risk perspective, we are insulated in the sense that we will focus only on the top-rated firms and project-wise exposure.

Which sectors would you focus on?

The corporate growth is driving the demand. Sectors such as port, non-renewable energy and road. Our corporate strategy is to identify where we want to be, rather than following the demand. There may be demand for one sector but we may not want to be there. So there is a granular focus on what assets we acquire.

Did you make a bad start on recoveries this quarter with just about Rs 1,481 crore of recoveries as against a projected target of Rs 10,000 crore for the whole year?

We have been saying that the provisions on bad loans would be front ended and recoveries would follow. The overall recovery and upgrades were at over Rs 2,400 crore which is in line with what we had said about Rs 10,000 crore of recovery and upgrades by the end of the year. For the retail loans we have an organised call centre, for corporate and SME accounts we have relationship managers allocated. Sector-wise recovery officers are now appointed, strengthening staff at the corporate level. This recovery and collection is strengthened. For corporate accounts of Rs 25 crore and above, we have a detailed strategy in place on how to tackle it. Some bit of handholding is also done so that the borrower is able to recoup their finances and start repayments. There are granular studies undertaken on whether an account needs restructuring or corporate debt restructuring.

Is restructuring helping? How many accounts have slipped into NPAs from the restructured book of the bank?

During the quarter, we have downgraded Rs 840 crore of loans to the NPA category. About Rs 608 crore has been upgraded to restructured standard accounts. Fresh restructuring during the quarter is Rs 1,276 crore. So we have a total restructured book Rs 29,809 crore. Currently, we have an SMA-2 (special mention accounts) of Rs 10,980 crore. About Rs 7,000 crore of the loans are at risk in the restructured book in the worst case scenario.