Government-owned Bank of India is likely to grow its loan book by 6-8 percent in the current financial year, as it looks to optimise the use of available capital, the bank’s Managing Director and Chief Executive Officer Melwyn Rego told reporters on the sidelines of a banking summit organised by the Federation of Indian Chambers of Commerce and Industry and the Indian Banks’ Association.
Bank of India was one of the worst hit by the Asset Quality Review launched by the Reserve Bank of India in the previous financial year. As part of the review, which kicked off in the third quarter of FY16, banks recognised and provided for stressed loans that were classified as ‘standard’ at the time.
In the three quarters that followed, Bank of India’s total bad loans rose by over 73 percent to Rs 5.19 lakh crore, or 13.38 percent of advances. The resultant higher provisions affected profitability and proved to be a drain on capital.
During his address at the banking summit, Rego said that during the last three months of the previous fiscal, he had spent many sleepless nights worrying about how to raise the requisite regulatory capital.
Bank of India has raised Rs 1,500 crore through issuance of Additional Tier-I bonds, and a similar amount through tier-II bonds in this financial year so far. Additionally, the bank has already raised half of what it planned to this fiscal through sale of non-core assets.
“That’s an option we are looking at (additional tier-I bonds) and we are also looking at divestment of our investments in associates and monetisation of non-core assets,” Rego told reporters. “The total quantum is Rs 1,000 crore, of which we have monetised more than half of it.”
Earlier this year, Bank of India raised funds through sale of 18 percent of its stake in Star Union Dai-Ichi Life to Dai-Ichi Insurance Co Ltd.
Going forward, the bank will raise capital in tandem with its growth plans, Rego said. He added that the bank was focussing on retail loans, which require much lower regulatory capital to be raised.
“For instance, in home loan if the LTV (loan to value) is less than 80 percent and the loan size is below Rs 30 lakh then only 35 percent is the risk weight. So this strategy has worked well and will continue for the course of the year,” Rego said.
Under the RBI’s extant norms for capital adequacy ratio, banks have to ensure that they set aside capital worth 9 percent of total risk weighted assets. Bank of India intends to focus on disbursing loans that have a lower risk weight.
“Our focus has been very clear that it would be retail growth. This is both from the angle of reduction in risk and capital optimisation,” Rego said. “We have shown considerable growth on the retail side. We have grown by 13 percent last year. Home loan and loan against property growth has been around 19 per cent.”
Bank of India’s loan growth guidance is at par with the mid-sized public sector banks, but lower than that of the larger ones. State Bank of India’s Chairman Arundhati Bhattacharya recently said that her bank may revise its loan growth guidance upwards from 12 percent for the current fiscal. Seperately, Union Bank of India projected loan growth of around 9 percent for the current year.
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