The Bank of Baroda on Thursday expressed its desire to acquire a bank in south or east India and said it was open to reduce the prime lending rate by 0.25-0.50 per cent.

Outlining a host of measures, BoB chairman P S Shenoy told reporters in New Delhi that the bank was hopeful of containing the net non-performing assets to two per cent.

"If any good opportunity exists for synergistic value, we are open to acquisition, preferably in south or east of the country," he said adding that as of now no move for the acquisition has been made.

On the PLR, Shenoy said there was a scope for 0.25-0.50 per cent-cut due to the continued soft interest rate stance taken by the RBI, high liquidity in the markets owing to steady foreign exchange inflows, receding inflation, and deregulation in the interest rates.

However, he said, with interest rates going down, there could be pressure on the spreads, which would be on the rise due to "certain constraints" in the savings rates, but was hopeful of reducing the cost of deposits to 5.50-6.0 per cent in this year from over six per cent in 2002-03.

On the VRS, which is high on the agenda of other public sector banks, Shenoy said, "We don't have any VRS plan for the time being. If it is required, then we will look into it only after two years and by that (time) the bank will be fully automated."

Ruling out any immediate foray into insurance, he said at present, the bank is increasingly focusing on containing the net NPAs and IT initiaitives.

With the three-pronged strategy of increasing cost recovery through the Securitisation Act and upgradation and restructuring of impaired assets, Shenoy said he was hopeful of cutting the net NPAs to two per cent in this fiscal as compared to 3.7 per cent in 2002-03.

However, he said, the net NPAs would increase by one per cent if the RBI's new definition of bad loans - if interests are not paid within 90 days, the account becomes NPAs - is taken into account.

He said with increased vigilance, BoB was able to arrest the fresh slippages to around Rs 550 crore (Rs 5.50 billion) in 2002-03 as compared to the four-digit figures in the previous years, adding that the bank has targeted Rs 1,000 crore (Rs 10 billion) recovery during this year.

Shenoy said the BoB had made enough provisions for the NPAs; the coverage ratio stood at 70 per cent in 2002-03 and was likely to go upto 90 per cent if the bank got a premium on the proposed buyback of government securities.

BoB had identified high-coupon gilts worth Rs 800 crore (Rs 8 billion) and was hopeful of getting a premium of Rs 200 crore (Rs 2 billion) on the perception that there could be capital appreciation to that extent. "But we are awaiting notification from the RBI in this regard," he said.

In the budget, Finance Minister Jaswant Singh had said that the banks could get exemptions on the premium earned from the buyback of g-secs provided they use it for provisioning of bad loans.

With a capital adequacy ratio of about 13 per cent, he said, the bank was not in need of fresh capital, though it had sought to approach the market for borrowings.