M D Mallya, chairman and managing director, Bank of Baroda, said banks are not averse to lending to any sector and interest rates could decline if liquidity continues to be strong and inflation numbers are under control. Edited Excerpts:

Chitra Suresh, UTVi

Let us start with the most discussed topic in the banking and the corporate circle, that is the lending rates. Heads of PSU banks are soon going to meet Finance Minister Pranab Mukherjee. Do you expect a stern message from the Finance Minister on the moderating credit growth and not so fast moving down lending rates?

Mallya: During the year 2008-09, the banking industry grew by about 21%, and in that space, the public sector banks grew by about 25-26% in terms of the overall growth. Going forward, in the current year, we would expect the loan growth to be in the range of around 21% for the industry. This is validated by the guidance given by the RBI in the credit policy and PSU banks will be able to show a growth of around 25-26%. Speaking about Bank of Baroda, last year, the growth in loans was about 27-28%, and even in the current year, I would expect a loan growth of 25% keeping in mind the kind of sanctions that are in the pipeline.

What about lending rates? Bank of Baroda has been cutting rates but there are complaints from the industry of not getting enough loans from the banking sector?

Mallya: I agreee that liquidity has been substantial as of now, and we have been responding to the signals given by the RBI. Prime lending rates (PLRs) have been reduced by almost 200 basis points in the last three months. In fact, Bank of Baroda has reduced PLR by 75 basis points (0.75%) two times, one in September 2008 and then in January 2009. Also, on April 1, 2009, we have further reduced the rates by 50 basis points... this makes a 200 basis point (2%) of reduction.

I feel in case liquidity continues to be strong and inflation numbers are under control, it could create a head room for further reduction as far as the interest rates are concerned. but up to what extent can't be said... one would have to wait and see..

I believe we are seeing benign interest rates, and, therefore, the rates could move down southwards this year. On the deposits front, I think rates have been coming down. Even in the current financial year, I think deposit rates have come down by 50-100 basis points across all maturities.

Dr Rakesh Mohan, a few years ago, had said that banks are into 'Lazy Banking'. Looking at the huge surplus being parked at the reverse repo window and also not much happening on the lending front, do you think banks are still indulging in 'Lazy Bbanking'?

Mallya: Dr Rakesh Mohan corrected it recently saying that looking at the growth of 30%, which banks have experienced in the last 3-4 years, he said are they doing 'Crazy Banking'. Coming back to the subject, I would say if we have been able to show credit growth of 27-28% in the last 2-3 years successfully, it can't be said we are shy of lending or risk averse. The point is that there should be credit demand, which we are always ready to support.

Normally, what happens is in the first half of the financial year, we don't see that much of demand. It slowly picks up as we move to the second half of the financial year. The trend in the current year has not been an exception. Therefore, perhaps due to surplus liquidity available in the system, it looks as though we have not been able to really lend.

You are the third largest nationalised bank and the pressure is more on nationalised banks. So what measures will the banking industry as well as your bank take to push credit growth?

Mallya: Infrastructure is one sector which requires substantial funds from the banking sector... and we have been supporting. Even if you look at the retail side and the SME side, we have been really active. Speaking from Bank of Baroda's point of view, one good initiative that we had taken a few years back was to set up centralised hubs for credit origination. It had been set up in both the retail space and the SME space. We call it as loan factories. Try to see that viable proposals are brought to our fold, and have a low turnaround time, that is the time taken for sanction of the proposal at the least desired levels.. For instance, let us say, we will approve a housing loan proposal in six days and SMS loans in 14 days... two things happen... first, we are proactive; second, the quality of assets originated in these hubs are substantially better.

Are you careful in lending to some sectors?

Mallya: By and large, we are open to lending to all the segments... we may go slow on lending to some sectors but even in those segments if a good borrower comes with a good proposal, I think we are not too averse to it.

Are you looking at any takeovers?

Mallya: It will be too premature to say that... if any opportunity arises, Bank of Baroda is a strong bank to look at the opportunities.