India's sixth largest bank is looking to boost letter of credit (L/C) business as one way to help overcome falling interest income resulting from the global credit crunch.

According to Bank of Baroda's chairman and managing director, M D Mallya, the bank is now charting a path that emphasises fee income generation and credit quality improvement.

Interest impact

Bank of Baroda has seen the impact of rising interest rates with its net interest margin falling to 2.76 per cent by the end of June 2008, from 3.02 per cent in the previous year.

Now the bank says it hopes volumes of customer transactions will increase by about 25 per cent, with increasing fee-based income substantially adding to the bottom line.

Neglected income

Mallya admits to an overemphasis on up until recently lucrative treasury operations while the bank neglected other income.

"Now we need a fee-based income not including treasury, but focusing on core banking," he says.

L/C focus

"We will, therefore, focus on L/Cs and guarantees," he adds.

This focus he reckons has resulted in a 45 per cent growth in the first quarter in commissions, foreign exchange transactions and wealth management products.

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