If the economy opens up fully, chances of recovery are very good: A S Rajeev, CEO, Bank of Maharashtra

Bank of Maharashtra chief executive A S Rajeev said that the bank may tap the capital market only in FY22 due the current adverse market condition even as Reserve Bank of India Governor Shaktikanta Das advised banks to create additional capital buffers to cover the emerging stress. BoM is one of the handful of state-owned lenders which have shown positive return on assets in FY20 after a gap of three years but the Covid-19 pandemic has cast a shadow again. In an exclusive interview with ET’s Atmadip Ray, Rajeev said that pharmaceutical and FMCG have become safer bets for lending following the outbreak of pandemic.
Edited excerpts...
How do you see the economy shaping up? When do you expect revival of credit growth?
The global economy has taken a hard hit due to Covid-19. The IMF in its recently released World Economic Outlook, June 2020 has reported that the global economy is expected to contract by 4.9% in 2020, the impact would be much larger than what we have seen during the global financial crisis of 2008. Given how our economy is interlinked with the rest of the world, we are no exception to the COVID impact. The present crisis has impacted our domestic growth resulting in significant reduction in capex as well as lower discretionary spending. All this is going to impact credit off take in the near term.

Going forward, as the economy opens up fully post lock down, chances of recovery are very good. The demand has started to pick up, although it is still lower than the pre-Covid levels. Moreover, at present, the agriculture sector / rural economy is likely to pick up primarily due to good monsoon expected this year. In other sectors, recovery is likely to pick up from the third quarter onwards, subject to then prevailing Covid situation.

How is the moratorium on loans which ends on August 30 going to affect your asset quality?
About 35% of our term loans borrowers have opted for the moratorium. This comes to around 20% of our total advances. Some parts of it may become delinquent but with high provisions ratio (84%), we would be able to take it in our stride.

Your bank has announced plans to raise capital… When is it likely to happen?
We are well capitalized with the capital adequacy ratio is at 13.5% (tier I capital at 10.67%) which is reasonably high to grow our assets book this fiscal. We may not need fresh capital this fiscal given a 10-12% growth target in advances. As you know, our board has created an enabling provision for us to raise up to Rs 3000 crore including Rs 2000 crore in equity, so that we can tap the market when it is required in the next one year. The present market conditions are not conducive for raising fresh equity capital whether by way of QIP / preferential issue or follow-on public offer of equity share capital. We would look at raising capital once the present market conditions improve and things become normal… most likely in the first half of next fiscal.

What would be your focus now?
Our focus is to have an ideal mix of fund based and non-fund based products for optimising overall growth in credit. Our target is to have RAM (retail, agriculture and MSME) & corporate advances in proportion of 55:45 for better return and risk diversification.

In order to grow the loan book, we are focusing on government/PSU undertakings, which are generally large ticket sized and “A” and above rated corporates for optimizing risk rewards.

Among midsize corporate accounts having ticket size of Rs 50 crore to Rs 150 crore, we would like to explore sunrise sectors such as pharmaceutical industries and FMCG, which are safer bets now. Financing MSMEs under the emergency credit guarantee line (ECGL) for providing adequate liquidity support to them is of course the thrust of the hour.

Is there a further scope of lowering lending rates? Or have rates bottomed out?
Interest rate is a function of various parameters such as cost of deposits / borrowing, operating costs, interest rates offered on various small savings schemes as well as prevailing economic scenarios.

Our bank has always been at the forefront of passing on the benefits of reduction in cost of any of these parameters. Since April 2020, the bank has reduced its Repo Linked Lending Rate (RLLR) by 115 bps from 8.20% to 7.05%. Similarly, we have also reduced Marginal Cost of Funds based Lending Rate (MCLR) by 75 bps from 8.25% to 7.50%.

Bank of Maharashtra is one of the four state-owned banks with over 90% government holding. What is the roadmap for bringing it down to 75 per cent as mandated by Securities & Exchange Board of India?
The present promoter holding comes to 93.32% after considering the capital infusion of Rs 831 crore by the government in March. We are in touch with authorities for allowing us some more time to achieve minimum public shareholding to 25%... the present deadline will be expiring in August.

According to various news reports, your bank is one of the three candidates for privatisation of state-owned lenders. Please share your views.
I don’t have any such news.