Tag: bank of baroda

PSBs are on an upswing, but have they really buried the past?, BFSI News, ET BFSI

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The stock market has turned bullish on public sector banks amid growing expectations that their asset quality woes have hit the trough.

The State Bank of India results announcing a reduction in bad loan pile has fuelled the euphoria. But experts say public sector banks are still wobbly despite the outlook as Covid stress has brought renewed challenges for them.

What’s up?

Traders have mounted derivative bets on state-owned banks encouraged by the recent run-up in share prices. The outstanding positions in futures contracts of public sector lenders such as SBI,

Punjab National Bank and Bank of Baroda have shot up, especially after strong March quarter results from SBI last week.

The open interest in Bank of Baroda futures by number of shares is at a lifetime high and in SBI it is at the highest since September 2020. SBI shares touched a lifetime high of Rs 427.70 on February 18 this year are near that mark.

Nifty PSU Bank index gained 2% to close at 2,398.15 on Monday, with Punjab National Bank, Central Bank and Union Bank and SBI gaining 2-5%.

In the ongoing May series, SBI’s shares are up 14.6% while Bank of Baroda’s shares have risen nearly 22%. Punjab National Bank’s shares are up 13.5% during the same period.

The red flags

While the banks have cleaned up their books, mostly on the basis of write-offs, and posting robust numbers they may be staring at a renewed stress.

Banks are facing greater stress in smaller towns, more so the public sector banks as they have a bigger presence there.

The special mention accounts of public sector lenders are increasing, showing a rise in new stress as Covid buffets smaller businesses.

SBI’s SMA accounts where repayments are overdue more than a month totalled Rs 11,500 crore, while Bank of Baroda and Punjab National Bank had also reported build-up of these accounts for the December quarter during in QIP documents.

Credit growth has been falling for the last few years and totalled 5.58% for FY21 as against 6.02% for FY20. This credit growth is mostly cornered by the private banks, with PSBs seeing a sharper fall in credit growth

While PSU banks have reduced their bad loan pile mostly through write-offs, the recovery from such accounts is abysmal at less than 30%. In FY20, about 25% bad loans were written off. SBI wrote off Rs 32,000 crore in FY21, which is 23% of its total bad loans.

Comparison with private lenders

PSU bank shares have mostly been underperformers vis-à-vis their private-sector peers in the past decade because of high nonperforming loans (NPLs) and loss of market share. The superior performance by private sector banks pushed their valuations to record levels.

The Nifty PSU Bank index is down 11.6% in the past three years, while the Nifty Private Bank Index is up 23%. The Nifty index is up 43.1% in the same period.

PSU banks including Bank of India, Punjab National Bank, Bank of Baroda and UCO Bank among others are trading at a Price to Book (P/B) of around 0.55-0.7 times. SBI is trading at P/B ratio of 1.6 times.

In comparison, private lender HDFC Bank is trading at 4.1 times and Kotak Mahindra Bank at 5.5 times.



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BBB recommends BoB’s ED Jain for MD & CEO’s position at Indian Bank

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The Banks Board Bureau (BBB) has recommended the candidature of Shanti Lal Jain for the position of MD & CEO in Indian Bank.

Jain is currently Executive Director in Bank of Baroda.

The Bureau also recommended the candidature of Soma Sankara Prasad, Deputy Managing Director at State Bank of India, as the candidate on the Reserve List for the MD & CEO position in the Chennai-headquartered public sector bank.

The Board of the Bureau interfaced with nine candidates from various public sector banks on May 24, 2021, for the forthcoming vacancy of MD & CEO in Indian Bank, BBB said in a statement.

Padmaja Chunduru, current MD & CEO of Indian Bank, will retire on August 31, 2021.

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Bank of Baroda mulls hiring digital marketing agencies to strengthen brand, customer outreach, BFSI News, ET BFSI

Banking & Finance

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Bank of Baroda is looking to hire three digital marketing agencies to strengthen its brand, aiming to be a preferred choice of customers with innovative banking models.

Bank of Baroda requires services of marketing agencies for overall digital marketing strategy, improving effectiveness of digital eco system, suggesting ideas as per requirement of the bank and well as doing analytics in the digital space among others, the bank said.

“Bank proposes to empanel three digital marketing agencies and these digital marketing agencies shall be responsible for digital marketing communication across various media,” the lender said in a tender document inviting bids from eligible agencies.

Bank of Baroda is one the largest PSU banks with over 8,400 branches and 12,000 plus ATM network across the country.

With presence in 21 countries across the globe, Bank of Baroda said it is forging ahead with cutting edge technologies and innovative new banking models.

Noting that it is an “iconic” and a “hugely trusted” brand, Bank of Baroda said in the recent past it has innovated a slew of digital offerings targeted not just at the youth, but across the demographic spectrum, both in rural and urban India.

“With such innovations and improvements, bank aspires to give an impetus to its marketing efforts to develop a highly favourable brand perception from what it is today, in the process, endeavour to become the preferred choice of customers when it comes to fulfilling their needs,” said the lender.

To that end, the bank now seeks to appoint a highly regarded and well recognized digital agency. The bank said the agency should have a minimum experience of at least 5 years and for start-ups, the minimum experience is of at least 3 years.

Among others, the agency should currently be a Google/Facebook partner in India and have a full-fledged office in Mumbai and shall allocate a dedicated team for the bank.

Bank of Baroda also aspires to be visible digitally through means such as YouTube, influencer tie-ups, content syndications as well as new age media opportunities. The digital marketing firm will also be required to create content through campaigns, mobile first based content, blog–articles, infographics, gifs and videos.

The bank said it will hire the agency for a period of three years which may be extendable further for a period of two years.

The interested agencies can submit their bids by 3PM on June 4. The bank said it will shorty inform about the date of commencement of the bid opening.



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Divestment hopefuls Bank of Maha, BoI, IOB shoot up on stock market charts, BFSI News, ET BFSI

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Public sector banks Bank of Maharashtra, Bank of India, Indian Overseas Bank and the Central Bank of India, which are reportedly on the privatisation shortlist have risen manifold during the year.

The rally in PSU banks has strengthened in the last few days despite the yo-yoing markets due to the coronavirus pandemic wave.

Bank of Maharashtra shares have nearly doubled from Rs 13.55 at the start of the year to Rs 25.40 per share. It was up 2.21% over the previous close on Wednesday.

From 10.80 at the start of the year, Indian Overseas Bank’s shares have risen over 52% to 16.45. The shares were up 3.13% over the previous close on Wednesday.

From Rs 50.35 a share in January start, the Bank of India share price has climbed to 72.70 on Wednesday. It was up 4.76% over the previous close.

From 14.10 in January, the share price of Central Bank of India has jumped to Rs 18.45 on Wednesday. It was up 7.89% over the previous close.

The top PSU banks including SBI, Bank of Baroda, Canara Bank and PNB are also outperforming over divestment hopes around PSU banks.

More upside seen

Traders see another 10-15% jump in PSB shares if the Nifty holds 14500 levels.

SBI is the top investment pick in case the Nifty holds 14,400, with others offering a good trading opportunity for greater upside on talks around divestment.

PNB, Canara Bank, Bank of Baroda and SBI, which hold 74.63 per cent weight in the Nifty PSU Bank, have rallied between 4 per cent and 17.5 per cent in April 20-May 11, driving the index up by 15.05 per cent to 2,239.7 over the same period. This beats the Bank Nifty’s 6 per cent rally through 32,953 over the comparative period.

On May 12, when the Nifty and Bank Nifty corrected by more than 1 per cent, the Nifty PSU Bank closed up 3.2 per cent, underscoring the buying in these counters.

Futures prices of these stocks along with aggregate open interest change signal the market interest in these counters.

Canara Bank active futures contract has risen 17.5 per cent through 151 between April 20 and May 11. Over this period, the aggregate open interest, which measures traders’ outstanding buy-sell positions, rose 11.25 per cent, implying bullish sentiment on the counter.

Bank of Baroda’s 17 per cent gain in futures was accompanied by an 11.3 per cent decline in aggregate OI, signalling that bears were covering their sell positions. Likewise, SBI active futures contract, which has risen 11 per cent in the relevant period, was accompanied by an 8 per cent decline in aggregate OI, implying short covering. PNB futures, which rose 4 per cent, saw aggregate OI jump 40 per cent, suggesting bullish build-up.

The status

Indian Overseas Bank and Central Bank are under the Reserve Bank of India‘s stringent prompt corrective action framework.

These banks have reported net non-performing assets (NPAs) below levels that trigger PCA. However, on the proforma net NPA front, Central Bank falls short as its NNPA is 6.58% against the 6% required to be out of PCA.

The Reserve Bank of India is likely to delay regularising struggling state-run lenders that are under the prompt corrective action (PCA) framework as it has reservations over their capital adequacy levels.

Two public sector banks and one general insurance company are expected to be disinvested this year in addition to the divestment of IDBI Bank, Finance Minister Nirmala Sitharaman had announced during Budget presentation in February.



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PNB report higher stress levels a year after merging two banks, BFSI News, ET BFSI

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Ahead of its plan to raise funds via qualified institutional placement, Punjab National Bank (PNB) has revealed a pile of stressed loans.

As of December, the lender had 13.2% of loans with repayment overdue for more than one month.

It had a gross bad loan ratio of over 14% for the December quarter with most stressed segments being corporate loans and small businesses. MSME dominated loans those where repayments are overdue for more than thirty days or SMA loans.

PNB’s ratio of loans that were in default for anywhere between one and 90 days stood at 20% of the overall book at the end of 2020, according to the offer document issued by the bank. It witnessed a sharp increase in its stressed loans during the moratorium period last year.

SMA accounts

The special mention account (SMA)-2 loans, where repayments are overdue for 61-90 days, rose to 8.8% as on December 31, 2020, from 2.74% as on September 30, 2020.

The SMA loans as of December 31, 2020, also include loans that were not being classified as non-performing assets (NPAs) in line with the Supreme Court’s interim stay on recognition of fresh bad loans after August 31, 2020.

With the stay vacated on March 23, these loans are likely to slip into NPAs as of the March quarter of FY21.

About 2.89% of MSME advances were classified as SMA 2 while 2.72% loans in the corporate sector were unpaid between 61 and 90 days.

In Bank of Baroda‘s offer document too, the bank’s SMA ratio surged to 21.57% as on December 31, 2020, from 8% on March 31, 2020.

These are likely to slip into the NPA bucket in the March quarter of FY21 as the stay was vacated on March 23.

while both banks had around 20% of their loans under SMA, PNB carried a much higher ratio of SMA 1 and 2 loans — 13% — compared to 9% for BoB. Segment-wise, SMA2 for PNB is nearly double that of BOB in the retail and corporate sector.

The QIP

PNB board has approved raising equity capital from qualified institutional investors to enhance its capital base. For the Qualified Institutional Placement (QIP) purposes, the bank has fixed the floor price at Rs 35.51 per equity share. The ”Relevant Date” for the purpose of the QIP is May 10, 2021 and accordingly the floor price in respect of the aforesaid QIP, based on the pricing formula as prescribed under SEBI ICDR Regulations is Rs 35.51 per equity share, PNB said in a regulatory filing.

The merger

Last year, Oriental Bank of Commerce (OBC) and United Bank of India (UBI) were merged into Punjab National Bank (PNB), making PNB India’s second-biggest public sector bank after State Bank of India (SBI).

In a first three-way amalgamation, Vijaya Bank and Dena Bank were merged with Bank of Baroda from April 1, 2019.



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RTI reply, BFSI News, ET BFSI

Banking & Finance

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INDORE: As many as 2,118 branches of 10 public sector banks have either been closed or merged with other banks in the last fiscal, according to an RTI reply.

The highest number of 1,283 branches of Bank of Baroda were either closed or merged, according to information provided to an RTI query filed by Neemuch-based activist Chandrashekhar Gaud.

No branch of Bank of India and UCO bank was closed in the last fiscal. The government consolidated ten PSU banks into four in the last financial year, bringing the number of nationalised banks to 12.

All India Bank Employees Association general secretary CH Venkatachalam said a dip in the number of the public sector banks was not in the interest of the banking industry and domestic economy.

He said there was a need to expand the branches of the banks to cater to the vast population in the country.

Bringing down the number of bank branches has reduced employment opportunities in the banking sector following which the young people were frustrated, Venkatachalam added.



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Lenders to approve the transfer of 30-40 loans by next week, BFSI News, ET BFSI

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The Indian Banks’ Association (IBA) has identified 102 corporate bad loans, totalling to Rs 2 lakh crore, where the amount outstanding in each is over Rs 500 crore that can be transferred to the proposed National Asset Reconstruction company (NARC) or bad bank.

It has asked its member banks asked members to identify large loans where they are lead bankers and get approval from co-lenders so that these loans can be sold to a National Asset Reconstruction company.

The loans identified by IBA include NPAs in a variety of industries — including oil, steel, cement and roads, with many admitted under the insolvency process. These loans are almost fully provided for over the years and they exclude the ones where there is fraud involved or those currently under liquidation. About 75% of the lenders by value need to approve to transfer the loans to an ARC.

The process

In the first phase, lenders are expected to approve the transfer of 30-40 loans by next week for transferring the loans from the books of banks is already in place.

Once the lenders decide on selling the loan, the NARC will make them an offer based on the scope of recovery. With the NARC’s offer on hand, the lenders will hold a ‘Swiss Challenge’, where rivals are allowed to better the offer made by a chosen bidder.

While rival in the private sector will be given an option to bid, it is unlikely they will succeed. This is because the security receipts issued by the NARC for 85% of the value of the loans would be guaranteed by the government. Since private companies do not have a government guarantee, they can only hope to win if they can provide cash. The Swiss Challenge will enable the public sector banks to comply with RBI’s norms that require banks to sell loans through a price-discovery process rather than doing a one-to-one deal.

The NARC will pay up to 15% of the agreed value for the loans in cash. The bad bank is also expected to do a good job in recovery as it will create a trust that will assign the task to an asset management company (AMC) in the private sector.

Each corporate nonperforming asset (NPA) will be converted into a special purpose vehicle, which will be sold by the AMC.

The bad bank

Nine banks and two non-bank lenders, including the State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB), are coming together to jointly invest Rs 7,000 crore of initial capital in a proposed bad bank that aims to help extract funds stuck in bad loans. Two other state-run financiers of power projects will also own stock in the bad bank.

Canara Bank, Union Bank of India and Bank of India will join their larger state-run peers as investors in the bad bank. ICICI Bank, Axis Bank and Life Insurance Corp of India-owned IDBI Bank are also among the shareholders. State-owned Power Finance Corp and Rural Electrification Corp will also be equal shareholders in the new company.

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Can’t reveal info of customers, recall RTI order, banks tell SC, BFSI News, ET BFSI

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NEW DELHI: Nearly six years after the Supreme Court ruled that RBI had to reveal information about functioning of banks under the RTI Act, major banks, including SBI and HDFC, on Friday urged the court to recall its order as they cannot reveal confidential information of account holders who may sue them for putting such details in public domain.

The SC had in 2015 directed that RBI can’t refuse to reveal information under the transparency law on financial health of banks under the pretext of ‘fiduciary relations’ with financial institutions and had held that the regulator was supposed to “uphold public interest and not the interest of banks”. Another round of litigation was initiated after RBI didn’t comply with the SC order and the court issued contempt notice. The proceedings were wound up in 2019 with RBI being given the last opportunity to comply to disclose its Annual Financial Inspection report of banks.

With RBI asking the banks to provide information to be disclosed under the RTI Act, third round of litigations has started with all major banks filing fresh applications and petitions seeking quashing or recall of earlier direction. Banks such as SBI, PNB, HDFC, Bank of India, Bank of Baroda made a pitch for re-examining the issue. Solicitor General Tushar Mehta with advocates Harish Salve and Mukul Rohatgi contended before a bench of Justices L Nageswara Rao and Vineet Saran the banking industry could be affected and the SC order might be misused for corporate rivalry. They said only RBI was heard by the SC and the banks were not parties in the litigation.



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Pay scale for bank CGMs made almost equal to EDs, executives say its against natural justice, BFSI News, ET BFSI

Banking & Finance

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Pay hikes, especially steep ones, should make executives smile, but not so in the case of public sector banks. A recent government note allowing banks to raise pay scales for chief general managers by as much as 62% has not gone down well with a section of bank executives.

This makes their remuneration almost at par with that of executive directors. The new pay scale structure, several top bank executives say, is against principles of natural justice.

The new pay scale for bank CGMs has been fixed at Rs 166350-183950 from Rs 103,000-113900 and this would be effective retrospectively from the date when they assumed charge in their respective banks, the Department of Financial Services said in a letter to chief executives of nationalised banks. This is in line with CGM pay scale in State Bank of India, the DFS note said.

ET has reviewed the DFS letter, dated April 1, 2021.

Pay scale for executive directors has been Rs 176800-224000, which was last revised in December 2016.

Bank managing directors and EDs draw salary following the 7th national pay commission recommendation while CGMs’ salary hike followed the latest bipartite wage settlement like other bank employees.

However, as CGM positions in banks are created with board approval, the revision in their pay scale, allowances and other terms and conditions require government’s approval.

“At present the issue has created a lot of heat among top bank executives. Some more clarity is needed on the matter,” an executive director with a mid-sized bank said. “If the issue is not addressed, there may not be any incentive for people to apply for ED positions,” the person said. Several other senior executives with public sector banks corroborated his views.

“The anguish among bank executives is not surprising. Responsibility of an ED is much larger than a CGM and therefore, they should draw a much higher salary than CGMs,” a former bank chief executive said.

Banks were given the flexibility to create CGM level with separate pay structure in August 2019. Following this, Bank of Baroda, Canara Bank, Punjab National Bank and Union Bank of India created the position in March 2020. Bank of India created the position in October last year.

Some of the banks such as erstwhile United Bank of India had created CGM post earlier but there was no pay scale benefit attached to that.



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All you need to know about the impact of PSU bank merger on the customers, BFSI News, ET BFSI

Banking & Finance

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Eight PSU Banks namely Vijaya Bank, Corporation Bank, Andhra Bank, Syndicate Bank, Oriental Bank of Commerce, United Bank of India,Allahabad Bank and Dena Bank will see merger coming into effect from April 1, 2021. Customers of any of the above listed banks should know about the following changes and the steps they will have to take for the same.

1. Account number:
In case of the past bank mergers there was no change in the account number for the bank customers say for in the case of Union Bank of India, only the IFSC code changed. Also, there have been known instances where the bank has checked with the entity with which you have set the electronic clearing settlement (ECS) such as for SIP, utility bill payment etc. for change in the ECS i.e. matched their ECS for the old ECS.

The transition in the case of Bank of Baroda has resulted in a change in the account number for customers. What you need to do in respect of bank account number, IFSC and MICR: Here the onus shall be on the bank customer to modify or update previously given ECS mandates and also update such details with various entities including tax department, EPFO, insurers or brokers for that matter.

2. Cheque books:
From 1 April, the cheque books of the banks getting merged will not be valid. New cheque books from the anchor banks will be provided. For example, the cheque books of Oriental Bank of Commerce and United Bank of India will be valid only until 31 March. The two banks are merged with Punjab National Bank.

Some banks could also offer more time to customers as the RBI has allowed some banks to continue with the old cheque books for another quarter or two. For example, Syndicate Bank customers can use their cheque books until 30 June. Customers will need to track their banks’ developments to know when they can continue using the cheque books.

3. Fixed Deposits & Loans:
These deposits are in fact contracts for some predefined period and any change in structure of the bank will not result in any interest change for you. Likewise, you can continue with the deposit until maturity at the same rate, irrespective of whether the deposit rate at the merged entity is lower or higher.

Similar to FD contracts, home loan is also an agreement between the borrower and lender and in the event of bank merger there shall be no change on the previously stipulated terms. Over the past one year, the rates of the merging bank and the anchor bank have converged to a common ‘external benchmark lending rate’ (EBLR). In case there is a review clause in loan term then the rate of interest of the acquiring or anchor bank may apply.

4. Money transfer:
The Indian Financial System Code (IFSC) and Magnetic Ink Character Recognition Code (MICR) will change for some banks and will remain the same for others. For instance, Union Bank of India, the account number has not changed Only the IFSC code has changed. Every bank migration is different.

Customers will again need to check with their bank on what has changed and what has not. Accordingly, they will need to change their ECS instructions for loans and other payments such as life insurance and mutual fund investments



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