Tag: bank of baroda

Indian banks brace for bad loans with stronger balance sheets, says new S&P report, BFSI News, ET BFSI

Banking & Finance

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Indian banks’ prior efforts to strengthen their balance sheets will help them mitigate the impact of asset quality as bad loans ticked higher in the April-to-June quarter following a deadlier wave of the COVID-19 pandemic, according to a new report by S&P Global Market Intelligence research.

“Banks have been taking steps to fortify their balance sheets over the last year or so to face the asset quality impact. These have been through enhancing capital base, increasing provisioning cover and having adequate amounts of liquidity,” said Krishnan Sitaraman, senior director at CRISIL, a unit of S&P Global Inc.

The June quarter saw gross NPAs rising, mainly in retail and small and medium-sized enterprise portfolios for banks.

“That is because these segments have been impacted more by the pandemic and the lockdown measures. The pandemic’s second wave has had a much larger health impact and geographical spread as compared to the first,” Sitaraman said.

State Bank of India, the country’s largest lender by assets, reported total nonperforming loans of Rs 1.36 lakh crore for the fiscal first quarter that ended on June 30, up from Rs 1.28 lakh crore in the previous three months and Rs 1.31 lakh crore in the same period of 2020.

ICICI Bank, the second-biggest private-sector lender, said its gross nonperforming assets rose by Rs 7231 crore in the first quarter, mainly from its retail and business portfolio. State-run Bank of Baroda reported fresh slippages of Rs 5129 crore in the first quarter, versus Rs 2740 crores in the prior-year period.

During the fiscal first quarter, Indian banks saw higher-than-expected slippages of more than 200% year over year that largely arose from retail and SMEs, according to an Aug. 16 research note from Jefferies.

Slippages were higher than expected as new COVID-19 restrictions affected collections, Jefferies analysts said, adding that some banks have started to recover in July and normalcy may return in the fiscal second or third quarter.

India’s economy took a severe hit during the second wave of the coronavirus, with the number of daily cases peaking above 400,000 in May. Cases have tailed off in recent weeks as the government stepped up vaccinations.

Still, the high number of COVID-19 cases and deaths are expected to have had a bigger impact on the economy in terms of jobs lost and businesses shut. Also, most forbearance measures announced last year, including a Supreme Court order stopping banks from classifying delinquent loans as nonperforming assets had been lifted after the economy recovered from the initial wave of infections.

Banks are now seeing the full extent of borrower stress with a one-time debt restructuring facility and the Supreme Court’s standstill on NPA recognition no longer available.

“In the absence of regulatory measures such as moratorium, the gross NPA formation due to the recent wave of COVID-19 is being upfronted in the first half of the current fiscal [year] for the system, including us,” said Sandeep Bakhshi, CEO of ICICI Bank, during a July 24 earnings call. Bakhshi expects the bank’s gross NPA additions to be lower in the second quarter and “decline more meaningfully in the second half of fiscal 2022,” based on expectations of economic activity.

Stress tests by the Reserve Bank of India indicated that the bad loans of all banks may rise to 9.80% by March 2022 from 7.50% in the same month of this year under a baseline scenario. However, the bad loans ratio could rise to as high as 11.22% by March 2022 under a “severe stress” scenario for key macroeconomic indicators, the central bank said in its biannual Financial Stability Report released July 1.

“Many banks have set aside higher provisioning buffers and raised capital in the last one year or so. This should help them absorb the rising stress in their retail book,” said Nikita Anand, an analyst at S&P Global Ratings.

“On the other hand, banks with lower provisioning buffers and weaker capitalization could see a sharp impact on their profits and capital levels,” Anand said. “This could be more acute for banks with significant underlying exposure to small business owners or unsecured retail products where loss given default could be higher.”



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Bankers hopeful of a revival in corporate loan growth as economy opens up, BFSI News, ET BFSI

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Bank credit to industry remains muted, falling 1.7% in the year to date, with companies slashing debt and harnessing existing capacities in a demand environment made uncertain by the pandemic. But bankers expect a revival in corporate loan growth as the economy opens up, making a strong business case for capital expenditure.

Chunky industrial loans, which make up about 30% of non-food credit, have witnessed lukewarm demand so far in 2021, latest central bank data showed, underscoring a trend among companies to conserve cash, deleverage as much as possible, and leave under-utilised the respective loan limits sanctioned by lenders. Retail credit demand has expanded, however, through the period of episodic lockdowns and curbs on mobility.

Both analysts and bankers believe credit demand will now pick up as companies invest for the next cycle of growth. In a report published earlier this month, Japanese investment bank Nomura said growing optimism and abundant liquidity should boost loan demand.

“Banks expect an across-the-board improvement in demand through Q1 2022, with optimism levels the highest for retail loans, followed by manufacturing and services, while infrastructure loan demand lags,” Nomura said. “The simultaneous rise in loan demand and easing of loan supply conditions suggest that credit growth should eventually pick up.”

An uncertain business environment led to muted credit demand from traditionally asset-heavy industries, such as industrial metals, metal products, iron and steel, construction and cement. Instead of adding more debt to their balance sheets, several companies in these sectors sought to deleverage, harnessing cash flows to improve their debt profiles.

Incidentally, better profiles should now encourage many companies to add debt as expansion capital.

“We believe India Inc, after undergoing a phase of deleveraging over the past few years, is now better positioned … (for) re-leveraging. Indian financiers, too, have saddled themselves with ample liquidity or capital buffers to tap the emerging opportunity,” ICICI Securities said in a note. “Recovery in economic activity and the derivative effect of increased investments and corporate/government spending on consumption will sustain the momentum of 15%-plus growth over FY22-FY25.”

To be sure, cheaper rates in the local and overseas bond markets meant that companies looked to those sources for their short- and medium-term funding needs instead of banks.

Bankers believe that as companies embark on large projects, loan demand will rebound. For instance, Bank of Baroda reported a year-on-year fall of 10% in corporate loans as it shed low-yielding advances in the first quarter. But CEO Sanjiv Chadha said he expects loan growth to pick up this year, helping the bank expand its loan book by 7% to 10%. That would include a 5% to 7% expansion in corporate loans.

“Retail loans will still grow faster than corporate loans but we are seeing an uptick in demand from road projects, city gas projects and renewable energy projects, which will help the demand for loans,” Chadha said during the bank’s first-quarter earnings call.

Retail loans have expanded 12% on-year, helped by a low base and paced by demand for homes and vehicles. Credit card spending fell.

Home loans expanded 10% and vehicle loans 11% despite the lockdowns through April and May. But outstanding credit card loans fell 12% year-on-year as consumer sentiment was hit by localised lockdowns.

State Bank of India (SBI), which reported a 2.3% fall in corporate loans, also expects the situation to improve this fiscal. Chairman Dinesh Khara said he expects demand from companies to improve, boosting its loan margins, as both individual and industrial borrowers add more loans.

To be sure, demand from industry is crucial to prop up overall credit growth.

“We believe industry growth will have to emerge as a key driver to boost credit growth in coming years. While it may happen with some lag, revival in consumer demand and rise in government spending can be the potential triggers,” ICICI Securities said.



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Banks to auction over 2,000 residential properties in next 30 days, BFSI News, ET BFSI

Banking & Finance

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Banks are auctioning over 2,000 residential properties and about 549 commercial ones in the next 30 days, according to Indian Banks Auctions Mortgaged Properties Information portal — ibapi.in. Bank of Baroda will hold a mega e-auction on August 18.

Within the next seven days, banks are auctioning 1,101 residential properties, 267 commercial properties and 129 industrial ones.

In the next 30 days, banks have put on auction 2,036 residential properties, 549 commercial properties and 288 industrial ones.

The total residential properties listed for auction are 11,510, commercial properties 2,733, agricultural properties 1,335 while 12 banks are participating in the auction.

Perceptions regarding bank auctions

One of the main attractions of buying a bank auctioned property is that there there is a possibility of getting it at a substantial discount to the prevailing market price.

This is because the banks are interested in selling the property at the earliest and are primarily concerned with recovery of their dues which is usually lower that the value of the property. While on paper this may look attractive, in reality it may not be so.

This is because, while the reserve price may be low, there could be many bidders competing at the auction (especially in case of e-auctions ) and the highest bid could be close to the market price.

Secondly, the original owner of the property (defaulter) is entitled to get the surplus from the sales proceeds after the settlement of bank dues. Hence, it is in his interest that the property is sold at a higher price. An aggrieved defaulter has the right to approach the Debt Tribunal, challenging the action taken by the bank.

In such a case, the matter could get stuck in a long legal dispute which can go right up to Supreme Court. If the action taken by the bank is found to be wrong, the sale may also be cancelled. The bank needs to keep the original owner (defaulter’s) interest in mind while auctioning the property.

Clear title?

Another myth regarding bank auctioned properties is that since one is buying the property directly from the bank, the title would be absolutely clear. It should be noted that the properties are sold in auction on ‘As is where is basis’ and ‘As is what is basis’.

Hence, such properties are not different from the other properties being financed by the bank and the buyer will get the same title as the original owner (defaulter).

There is generally a perception that participation in an auction is a cumbersome process and only people with expertise and deep pockets can participate. This is not true, especially now, with online auction, even a common man can bid for such properties. Also, the ticket size for properties could be as low as Rs 10 lakh or even less.

Another point to be kept in mind is that many times due to financial constraints, the property may not have been properly maintained by the defaulter. Hence the buyer may have to incur substantial expense on repairs and restoration of such property.



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Analysts suddenly gung ho on this PSU bank, see up to 50% upside, BFSI News, ET BFSI

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NEW DELHI: Bank of Baroda (BoB) impressed Dalal Street with its June quarter operating performance. A double-digit growth in retail loans and an expansion net interest margin (NIM) in the challenging June quarter were noteworthy. Gross non-performing assets fell marginally, but the impact of the second wave of Covid on its retail and MSME books was visible on slippages and credit cost.

Analysts said the situation was still under control and the management commentary was strong.

They said a rebalancing of the portfolio in favour of retail and a gradual decline in the international book would support NIM for the PSU bank. This, along with a moderation in credit cost will improve the return on asset (RoA) trajectory for the bank, analysts said and suggested up to 50 per cent upside for the stock.

“BOB recently raised capital via QIP, leading to a reasonable CET 1 of 11.3 per cent. With the merger (Vijaya Bank and Dena Bank) and asset quality pain now largely over, we expect BoB’s return on equity (RoE) to gradually improve to 10-12 per cent over FY23-24 from a low of 1 per cent in FY21,” it said and suggested a price target of Rs 122.

At Monday’s close of Rs 81.15, that target suggested a 50 per cent upside.

Motilal Oswal Securities has hiked its earnings estimates by 47 per cent for FY22 and 22 per cent for FY23 post the bank’s Q1 numbers. Estimating an RoA of 0.7 per cent and an RoE of 10.3 per cent by FY23, it has upgraded the stock to ‘buy’, with a revised price target of Rs 100.

ICICIdirect also sees the stock at Rs 100. It listed four factors that would prove key to its performance. First is the shedding of the bank’s low yield exposure and its focus on retail segment. Secondly, a shift to the new tax regime, which is set to aid profitability. The third is the comfortable capital to risky asset ratio at 15.4 per cent, which may keep earnings dilution risk away. Lastly, the decent asset quality amid the tough situation would help.

The bank reported a net profit of Rs 1,209 crore compared with a loss of Rs 864 crore a year ago. Net interest income (NII) rose 16 per cent to Rs 7,892 crore. Net interest margin (NIM) came in at 3.04 per cent against 2.52 per cent YoY and 2.73 per cent QoQ.

Retail loans rose 12 per cent YoY, led by a 25 per cent growth in auto loans, 20 per cent growth in personal loans, and a 38 per cent growth in gold loans.

The loan book, however, declined 2 per cent due to a 10 per cent fall in corporate loans as the bank shed low-yielding loans.

The gross NPA ratio declined marginally to 8.86 per cent from 8.87 per cent in the March quarter and 9.39 per cent the year-ago period, as recovery and upgrades increased to Rs 4,435 crore from Rs 818 crore YoY. The bank management is targeting Rs 14,000 crore in recoveries in FY22 and has guided for 1.5-2 per cent credit cost and net slippages of less than 2 per cent.

“It was a relatively steady performance but uncertainty over subsequent Covid waves and relatively elevated stress pool still temper our enthusiasm on earnings stability. The bank’s recent capital raise was dilutive, which is a persistent challenge for PSBs. We are rolling overestimates to December FY22, revising our target to Rs 98 from Rs 95 earlier,” Edelweiss said.

Edelweiss said the demonstration of the merger value add and, indeed, getting through the current crisis without deep earnings erosion will be key to the stock performance.

The promised post-merger rationalisation benefits are not a foregone conclusion, given the complexity of the task at hand, it said and suggested that the valuation at 0.5 times FY22E P/BV lends some comfort.

JM Financial is building in a credit cost of 1.2 per cent and RoA of 0.7 per cent for FY23. It has a price target of Rs 95 on the stock.



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‘Transitory’ inflation reaches tipping point for companies in India, BFSI News, ET BFSI

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Indian companies are running out of room to absorb rising raw material costs, which could force the central bank to unwind stimulus faster-than-expected and threaten a stock market rally that has earned billions for investors.

Companies from the Indian unit of Unilever Plc to Tata Motors Ltd., the owner of the iconic Jaguar Land Rover, are increasingly complaining about pricier inputs and are frustrated at not being able to fully pass on costs to consumers reeling from the pandemic-induced economic shock. But it is only a matter of time before the pass- through happens, warn economists.

“Firms are yet to pass on the increase in underlying input costs due to weak demand,” said Sameer Narang, chief economist at Bank of Baroda in Mumbai. “This will change as growth and consumer confidence revives.”

That recovery in consumer optimism may be just around the corner, according to a survey by the Reserve Bank of India. While households were downbeat about the current economic conditions, they are hopeful about the year ahead prospects, the RBI said.

Any increase in prices could end up fanning inflation further and complicating the central bank’s efforts to support the economy. While Governor Shaktikanta Das has so far maintained that the inflation hump is “transitory,” the RBI this month for the first time since October last year saw consensus elude it on the need to keep interest rates lower for longer to ensure a durable economic recovery.

With inflation already hovering above the RBI’s upper tolerance limit of 6% for the past two months, one of the rate setters, Jayanth Rama Varma, expressed “reservations” about continuing with the accommodative policy stance, Das told reporters Friday. The RBI separately raised its inflation forecast for the fiscal year ending March to 5.7% from 5.1% previously, even as Das underlined the effect of higher global commodity prices, broken supply chains and steep local fuel taxes on price-growth.

Data due Thursday will probably show consumer prices rose 5.7% last month, cooling from near 6.3% in June. Wholesale prices — scheduled for release on Monday — are likely to show factory-gate inflation at double digits for a fourth straight month.

‘Transitory’ inflation reaches tipping point for companies in India
For now, the RBI has kept funding conditions benign, driving a rally in the stock markets. Individual investors by the millions were drawn to stock trading as they chased yields amid inflation and low rates denting returns from traditional sources such as bank deposits. About 14 million first-time electronic trading accounts were opened in the fiscal year ended March 2021, according to India’s market regulator.

For companies too, it’s a fight to protect margins — a crucial ingredient to delivering higher shareholder value. Firms across the manufacturing and services spectrum are grappling with rising input costs for months now, purchasing managers’ surveys show, trying hard to strike a balance between sluggish consumer demand and the need for higher sales and profits.

It is a fight that doesn’t appear to go away in a hurry, especially for manufacturing firms who have had to deal with higher prices of commodities and fuel costs for months on end. For the bulk of the previous financial year, most Indian companies resorted to cost cutting to boost profits, according to a study on corporate performance by the RBI.

“In terms of commodity inflation, I think this is something, which we keep on fighting,” said Girish Wagh, executive director at Tata Motors.

While its a tough balancing act, companies are mindful that something will have to give in eventually. In this case, it could mean higher prices being passed to consumers gradually as a recovery gets stronger in Asia’s third-largest economy.

“If commodity inflation remains, of course, we will have to keep working as we are doing already very hard on our savings agenda, but equally, lead price increases,” said Ritesh Tiwari, chief financial officer at Hindustan Unilever Ltd. These increases will be “required to protect the business model,” he said.

Others aren’t sure if steep price increases are the right way forward. Dabur India Ltd., one of HUL’s competitors, doesn’t favor that route.

“You’re caught between a rock and a hard place,” Dabur’s Chief Executive Officer Mohit Malhotra said, instead opting for calibrated increases. “At one end there is demand, which is not very, very resilient and there is inflation hitting us. So we don’t want to price out ourselves as far as the consumer is concerned.”

While the global debate between whether price pressures are “transitory” or not is still raging, in India, economists are certain that inflation is here to stay. Not surprisingly, bond and swap investors are pricing in chances of a faster-than-expected normalization of monetary policy by the RBI.

“We must differentiate between transitory inflation in developed economies and in India,” said Soumya Kanti Ghosh, chief economic adviser at the State Bank of India.

“Developed economies had not seen inflation at more than 2% even after incessant quantitative easing. In India, inflation is now running close to 6% for the last one year and almost all inflation prints, headline, core, rural and urban are converging at 6% or upwards implying inflation numbers may not be transitory.”



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Analysts suddenly gung ho on this PSU bank, see up to 50% upside, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: Bank of Baroda (BoB) impressed Dalal Street with its June quarter operating performance. A double-digit growth in retail loans and an expansion net interest margin (NIM) in the challenging June quarter were noteworthy. Gross non-performing assets fell marginally, but the impact of the second wave of Covid on its retail and MSME books was visible on slippages and credit cost.

Analysts said the situation was still under control and the management commentary was strong.

They said a rebalancing of the portfolio in favour of retail and a gradual decline in the international book would support NIM for the PSU bank. This, along with a moderation in credit cost will improve the return on asset (RoA) trajectory for the bank, analysts said and suggested up to 50 per cent upside for the stock.

“BOB recently raised capital via QIP, leading to a reasonable CET 1 of 11.3 per cent. With the merger (Vijaya Bank and Dena Bank) and asset quality pain now largely over, we expect BoB’s return on equity (RoE) to gradually improve to 10-12 per cent over FY23-24 from a low of 1 per cent in FY21,” it said and suggested a price target of Rs 122.

At Monday’s close of Rs 81.15, that target suggested a 50 per cent upside.

Motilal Oswal Securities has hiked its earnings estimates by 47 per cent for FY22 and 22 per cent for FY23 post the bank’s Q1 numbers. Estimating an RoA of 0.7 per cent and an RoE of 10.3 per cent by FY23, it has upgraded the stock to ‘buy’, with a revised price target of Rs 100.

ICICIdirect also sees the stock at Rs 100. It listed four factors that would prove key to its performance. First is the shedding of the bank’s low yield exposure and its focus on retail segment. Secondly, a shift to the new tax regime, which is set to aid profitability. The third is the comfortable capital to risky asset ratio at 15.4 per cent, which may keep earnings dilution risk away. Lastly, the decent asset quality amid the tough situation would help.

The bank reported a net profit of Rs 1,209 crore compared with a loss of Rs 864 crore a year ago. Net interest income (NII) rose 16 per cent to Rs 7,892 crore. Net interest margin (NIM) came in at 3.04 per cent against 2.52 per cent YoY and 2.73 per cent QoQ.

Retail loans rose 12 per cent YoY, led by a 25 per cent growth in auto loans, 20 per cent growth in personal loans, and a 38 per cent growth in gold loans.

The loan book, however, declined 2 per cent due to a 10 per cent fall in corporate loans as the bank shed low-yielding loans.

The gross NPA ratio declined marginally to 8.86 per cent from 8.87 per cent in the March quarter and 9.39 per cent the year-ago period, as recovery and upgrades increased to Rs 4,435 crore from Rs 818 crore YoY. The bank management is targeting Rs 14,000 crore in recoveries in FY22 and has guided for 1.5-2 per cent credit cost and net slippages of less than 2 per cent.

“It was a relatively steady performance but uncertainty over subsequent Covid waves and relatively elevated stress pool still temper our enthusiasm on earnings stability. The bank’s recent capital raise was dilutive, which is a persistent challenge for PSBs. We are rolling overestimates to December FY22, revising our target to Rs 98 from Rs 95 earlier,” Edelweiss said.

Edelweiss said the demonstration of the merger value add and, indeed, getting through the current crisis without deep earnings erosion will be key to the stock performance.

The promised post-merger rationalisation benefits are not a foregone conclusion, given the complexity of the task at hand, it said and suggested that the valuation at 0.5 times FY22E P/BV lends some comfort.

JM Financial is building in a credit cost of 1.2 per cent and RoA of 0.7 per cent for FY23. It has a price target of Rs 95 on the stock.



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‘We believe liquidity scenario should change in next few months’

Personal Finance

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That was the one-off which I believe should now start changing, and we should be getting back to normal operations in terms of how people behave, given their credit scores.

Bank of Baroda’s (BoB) decision to consciously run down some low-margin loans resulted in its loan book shrinking in Q1FY22, MD & CEO Sanjiv Chadha tells Shritama Bose. While retail repayments have been hit by the second wave of Covid, many small borrowers have a good track record and will soon resume good credit behaviour, he adds. Excerpts:

Your loan book has shrunk in Q1FY22. What is the outlook for the full year?

We have held a view that we would want to grow in areas which give us a positive risk-return. Given the fact that there’s abundance of liquidity and pricing is under pressure on the corporate side, we have focused on growth on the retail side. It is risk-mitigated to the extent possible in these uncertain times. So, we have had reasonably good credit growth in those areas. Our organic retail growth is about 12%. Within that, we have had about 25% growth in car loans.

Gold loans have done very well for us; they have grown 35%. The only reason that growth was subdued in this quarter was that we allowed some cheaply-priced corporate loans to run off because we believe that the liquidity scenario should start changing over the next few months. There is an opportunity to price corporate loans in a slightly better manner as compared to what was possible in the last 12 months. In the areas where we want to grow, we have grown at a reasonably good pace.

Where do you see credit growth for the rest of the year?

We have pretty much run down the loans where the margins were low. With that base, we should see corporate growth happening on a net basis from the next quarter onwards. We are seeing a fair bit of activity, particularly in the roads sector, on the corporate side as also in terms of city gas projects and renewable energy. Brownfield expansion is something we are seeing. On the retail side, we have some strong franchises, which should continue to grow, especially now that lockdowns are getting lifted. Our own sense is that we should see growth of about 7-10% for the industry this year, and our growth should pretty much be in line.

Most slippages for you have come from the MSME, retail and agri books. Was it a problem of collections or is there financial distress?

It was a bit of both. There is no argument that the retail segment and the MSME segment have been affected by the second wave in particular. The MSME sector was anyway under stress for the last one year, but the retail sector, which had still got through the first wave because there was a moratorium, was pretty badly impacted by the second wave. A lot of personal finances got upset by the second wave because I think there was hardly a family where there weren’t any Covid-related expenses amongst our borrowers.

Having said that, this was more of a one-off, you might argue. While the MSME challenge is a little more, because for the last one year, MSMEs have been impacted by lockdowns and demand disruption, for the retail sector it is more of a one-off. Last year, very few people looked at restructuring. This year, people have been impacted, loans have been restructured, some have slipped, but at the same time, in July, there is a fair bit of pullback that’s happening. My own sense is that both for MSME and retail, the kind of slippages we saw in the last quarter was peak distress, and that should start diminishing over the next few quarters, while the improvement we have seen in the credit cycle for corporates should continue. So for us, credit costs have come down as compared to last year simply because the corporate improvement has offset the challenges in retail and MSME.

Have you felt the need to tighten credit filters in the small loan segments?

Not really, for the reason that we actually have had fairly robust filters. In retail, our underwriting is mostly for borrowers who have credit scores of 700+. Seventy percent are 725+. But, in the last few months, even if you are somebody who has never defaulted on a loan and you have a 725+ credit score, the kind of health expenditure that happened was totally out of character and out of context, as compared to what your past credit record was. That was the one-off which I believe should now start changing, and we should be getting back to normal operations in terms of how people behave, given their credit scores.

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Banks report improved NII, lower NPA provisioning in Q1, BFSI News, ET BFSI

Banking & Finance

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The provision for cumulative non-performing assets (NPA) by banks softened in the June 2021 quarter after a spike in the previous quarter when they resumed accounting for slippages after RBI’s schemes to defer the recognition of actual NPAs ended in December. For a sample of 28 banks, the loan loss or NPA provision fell by 6.8% year-on-year and 43.8% sequentially to Rs 36,805.4 crore in the June quarter.

The aggregate provision by the public sector (PSU) banks fell by 27% year-on-year due to a sharp double digit drop reported by State Bank of India, Punjab National Bank, Canara Bank, and Bank of Baroda. On the other hand, private sector banks reported 51% jump following a sharp increase reported by HDFC Bank, Kotak Bank, Bandhan Bank and RBL Bank. As a result, their share in the total NPAs increased to 42.5% from 26.1% in the year-ago quarter.

The total sample’s net interest income (NII) increased by 4.8% year-on-year to Rs 1.2 lakh crore. A majority of the banks, 20 to be precise, reported higher net interest from the year-ago level. The share of the private banks in the sample’s net interest expanded to 43.8% from 41.7% a year ago.

The sample’s cumulative COVID provisioning increased to Rs 34,641.5 crore in the June quarter from Rs 29,892.8 crore in the previous quarter. Here, the share of PSU banks increased to 34.7% from 26.7% sequentially.

June ’20 September ’20 December ’20 March ’21 June ’21
Loan loss provision (Rs crore) 39504.8 33896.1 28828.5 65542.2 36805.4
Loan loss provision (YoY % change) -17.0 -11.0 -59.6 19.5 -6.8

Share of PSU banks in quarterly provisioning (%)

June ’20 September ’20 December ’20 March ’21 June ’21
PSU share (%) 73.9 77.5 63.7 66.4 57.5
Non-PSU share (%) 26.1 22.5 36.3 33.6 42.5

Data for a sample of 28 banks. Source: Bank data, ETIG



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Sanjiv Chadha, Bank of Baroda, BFSI News, ET BFSI

Banking & Finance

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The CASA ratio moved up from 39% to nearly 40% over last 12 months. That is one abiding benefit for the bank, not only in terms of margins for this quarter but also going ahead, said Sanjiv Chadha, MD & CEO, Bank of Baroda. Edited excerpts:

Congratulations on a healthy quarter in a tough environment. What has led BoB back to profits with low slippages in the first quarter, as well as lower credit cost on a sequential basis?
There are two major aspects which I think have had CASA improve things. One is on the structural side where we have had very tight discipline both in terms of managing liability franchise and also on the asset side. So, on the liability side, when you have abundant liquidity, it is very impossible that you allow deposit growth to run too far ahead of loan growth which creates pressure on margins. We have tried to be disciplined, make sure that our deposits grow in line with our loan growth.

Because we were choosy there, we have been able to make sure that most of the growth has come from CASA deposits. So, the CASA ratio moved up within a year from 39% to nearly 40% over last 12 months. That is one abiding benefit for the bank, not only in terms of margins for this quarter but also going ahead. Similarly on the asset side, there is a lot of liquidity sloshing around, pressure on margins. We are trying to be disciplined there also.

While both slippages as well as credit cost has been lower sequentially, what is the kind of slippages as well as credit cost that you expect? Where do you see gross net NPAs settle at for the financial year close?
We had guided even before the second wave that we would expect slippages to be below 2% and credit cost to be between 1.5% to 2% and bearing towards the lower end of that scale. We believe that despite the second wave we should be able to deliver on the guidance.

Your overall exposure to NCLT accounts is a little over Rs 48,000 crore and the PCR is 94%. To what extent of this amount do you see resolution? What are the overall recoveries and upgrades you expect for the whole bank and from these NCLT accounts as well?
The NCLT accounts tend to be the very highly provided; upwards of 90%. In terms of you might say anticipating in which quarter would it happen is always very difficult and so we do look forward to the resolutions of NCLT accounts. We are making sure that in terms of our recovery efforts and in terms of our recovery budgeting, we are looking beyond the NCLT accounts also. It is very tough to say what will come in which quarter, but I would believe that there are some accounts which probably will happen within this year and they will contribute significantly to the recoveries.

What is your exposure funded and non-funded to Vodafone Idea, how much you have provided for and what is the provision you expected to make?
Our exposure is relatively small, so it is not something which could significantly impact the improvement in the corporate credit cycle we have knocked off.

Let us talk about return ratios and profits from a two-year perspective. What is the improvement that you can expect on those two fronts and how do you see yourself competing with the modern day players that are coming in and making waves in the space?
The question might have two segments, one in the terms of the improvement in the profitability. I think that is something which is likely to be sustained over the next two years simply because we have built strengths in terms of the business both on the asset and liability side. On the liability side in terms of a CASA ratio, which now pretty much compares with the best in the business. Or on the asset side in terms of retail growth, which again have been better than market. So, we are very positive in terms of the structural story.

As we discussed, the improvement in the corporate credit cycle is likely to sustain over the next two years despite the second wave. We have seen even in this quarter the impact on corporate has been very marginal, therefore we can be fairly confident that the improvement that we have seen should continue going ahead.

The structural improvements in the balance of the bank, the earning power that has accrued to the bank from new businesses, and also the cyclical story should again help us have sustainable improvement and get back to return ratios which are very respectable. Coming back to the second part, in terms of the challenge of fintechs, I think it is an opportunity for banks and it is a great opportunity for us to collaborate with fintechs to create new businesses. Even as we speak, we have a very significant digital initiative which is being rolled out where we are collaborating with a large number of fintechs.

We expect that a large part, particularly on the retail side, should be digitised over the next 12 to 18 months and all of this will happen in collaboration with fintechs who would be our partners. I do not see any competition with fintechs as a zero-sum gain which is at the cost of banks, I think it is a great opportunity for the banks to in fact become much more efficient.



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Bank of Baroda clocks Q1 profit of Rs 1,209 crore, BFSI News, ET BFSI

Banking & Finance

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New Delhi, State-owned Bank of Baroda (BoB) on Saturday reported a standalone profit of Rs 1,208.63 crore during the quarter ended June 2021, helped by decline in bad loans provisioning. The bank had posted a net loss of Rs 864 crore in the same quarter a year ago.

Total income moderated marginally to Rs 20,022.42 crore from Rs 20,312.44 crore in the same quarter a year ago, BoB said in a regulatory filing.

The bank’s asset quality improved with the gross non-performing assets (NPAs) falling to 8.86 per cent of the gross advances as on June 30, 2021, from 9.39 per cent by the end-June 2020. However, net NPA ratio rose to 3.03 per cent from 2.83 per cent as on June 30, 2020, the bank said.

As a result, total provisions and contingencies for the quarter eased to Rs 4,111.99 crore from Rs 5,628 crore a year ago.

Provisioning Coverage Ratio including floating provision stood at 83.14 per cent as on June 30, 2021.

A penalty of Rs 41.75 lakh has been imposed on the bank by Reserve Bank of India for the quarter ended June 30, 2021, it said.

As per the Reserve Bank of India (RBI) circular, the bank has opted to provide the liability for frauds over a period of four quarters, it said.

Accordingly, the carry forward provision as on June 30, 2021 is Rs 349.45 crore which is to be amortised in the subsequent quarters by the bank, it said.



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