Tag: bank of baroda

‘Retail segment is waiting to be mined’

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Vikramaditya Singh Khichi, executive director (ED), BoB

Bank of Baroda (BoB) expects to grow above industry levels in the next financial year. In an interview, Vikramaditya Singh Khichi, executive director (ED), BoB, highlights the reasons to Ankur Mishra for the bank’s stellar growth in the home loan segment. Excerpts:

What has been your strategy for retail loans amid Covid-19? Is there a deliberate move to focus more on retail loans?

Though the pandemic brought tough challenges, it also gave us the opportunity to make greater use of the digital mode to get leads and keep our focus intact. The retail loan segment is an important part of our growth story and it figures prominently in our overall strategy.

Do you believe the momentum in retail loans will be maintained? What is your outlook on growth in advances in the current financial year and the next one (FY22)?

Yes, we are optimistic about continuing growth in retail loans as the macro-economic indicators point at under penetration in this segment. For example, in home loans, the penetration level is just 10%. At Bank of Baroda, the retail loan book is growing at more than 13% on a year-on-year (y-o-y basis and in the home loan segment, by around 12% y-o-y, which are above industry levels.

Growth is expected to be robust in the next financial year, and we hope to continue growing at above industry levels. By when will the bank achieve double-digit growth in (overall) advances?

The bank is doing well in various retail loan products, viz housing loan, auto loan (around 22% y-o-y growth) and education loan (around 10% y-o-y growth), and is also growing higher than the industry in overall advances. We expect to maintain the same tempo in the future, even accelerate growth further.

How are you placed on disbursements and collections? Are these back to pre-Covid-19 levels?

We are almost at pre-Covid19 levels on disbursement and collection parameters.

You have achieved double-digit growth in the home loan segment. What strategy have you employed?

It is a result of good products, pricing and processes, the hallmark of our bank. We have access to high-quality borrowers through bureau scores and we are able to price our products very competitively. The repo rate changes made by the Reserve Bank of India (RBI) in the early part of the financial year provided existing home loan borrowers an option to shift their home loans from non-banking financial companies (NBFCs)/housing finance companies (HFCs). And this came as an opportunity for us to grow the home loan business. The launch of new specialised mortgage stores and product innovation also contributed to the growth we have achieved. The third quarter of this fiscal saw perceptible growth in new home sales across the metro cities, thanks to good offers from developers, some property price correction and interest rates being at an all-time low in the segment.

Do you think there could be a build-up of stress in the retail book? To what levels do you expect retail NPAs to rise? How do you plan to address the issue?

As we are already at the pre-Covid-19 level, we do not foresee any major increase in stress in the retail book. As I mentioned earlier, we are focused on quality growth. Around 73% of our borrowers have a bureau score above 725 and 84%, above 700. There is therefore no cause for undue concern as regards the stress levels.

How are you placed on provisioning?

The bank has made adequate provisions as of December 2020 (Q3 FY21), in conformity with regulatory guidelines as well as the Supreme Court (SC) order. The Provision Coverage Ratio (including Two) was above 85% in Q3FY21. The bank is setting aside 20% for substandard category assets, as against the regulatory requirement of 15%. We make appropriate provisions whenever the situation warrants.

Any plans to raise more capital this fiscal, given that you have already raised over `3,700 crore through tier-1 bonds?
The raising of capital depends on the bank’s requirements and the market scenario. In FY2020-21, we have raised a little over Rs 8,200 crore, which includes equity capital of Rs 4,500 crore through the qualitative institutional placement (QIP) route recently.

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Retail stress hits private banks hardest: Govt data

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“Moratorium has delayed the stress in these segments where delinquencies have not yet stabilised, and higher loan losses are expected to materialise in FY22,” the agency said in a report.

Rising financial stress among small borrowers is hitting the books of private banks the hardest, show data released by the government in response to a question in Parliament. Between March and December 2020, banks saw upto 380-basis point (bps) rise in their ratio of stressed retail advances, with more private lenders seeing a deterioration than public sector banks (PSBs).

With the exception of Punjab & Sind Bank and Bank of Baroda (BoB), most other PSBs saw their stressed retail advances ratio either declining or remaining flat during the period under review. On the other hand, seven private banks saw an increase in their ratio of stressed retail advances to all retail advances. Stressed advances include gross non-performing assets (NPAs) and restructured standard advances.

Karur Vysya Bank’s stressed retail assets ratio rose to 5% from 2.2% during the period under review, while DCB Bank’s grew to 3.7% from 1.9%. Over the same period, the ratio at HDFC Bank rose to 1.4% from 0.7%, at IDBI Bank to 2.5% from 1.3%, at IDFC First Bank to 2.3% from 1.8%, at IndusInd Bank to 4.2% from 2.5% and at Kotak Mahindra Bank to 2.6% from 2%.

Private banks typically lend to employees from the private sector and to self-employed people, all of whom have been hit harder by the Covid-19 pandemic. PSBs have a relatively smaller share in retail lending and their customers are often employed with the government or other state-owned enterprises. Also, private banks have had a stronger presence in the unsecured lending space where the credit risk is higher.

Analysts have been saying that unsecured loans and microfinance exposures could throw up nasty surprises on the asset quality front. India Ratings and Research on Tuesday said that the performance of unsecured asset classes, such as microfinance loans, unsecured business loans and consumer loans, is worsening, given the borrower’s depleted financial cushions and the nature of these loans. “Moratorium has delayed the stress in these segments where delinquencies have not yet stabilised, and higher loan losses are expected to materialise in FY22,” the agency said in a report.

Sensing the incipient stress in the retail segment, banks have been tightening their credit filters. After Axis Bank’s Q3FY21 results, chief risk officer Amit Talgeri told analysts that over 83% of incremental retail sourcing is from secured products, primarily mortgages, during the current year. “We continue to remain cautious in the unsecured segments, and sourcing is largely restricted to existing Bank customers based on tightened risk frameworks,” he said. Earlier, FE had reported that banks have been refusing loans to customers employed in Covid-hit sectors like aviation, hospitality and the media.

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Bank of Baroda bets on new digital platform to expand retail lending, BFSI News, ET BFSI

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State-owned Bank of Baroda (BoB) is making a bold move to expand its retail lending through a self made digital lending platform which assesses credit risk through varied public and private data points like bank account statement, tax statements and consumption trends.

Akhil Handa, head fintech and digital lending said the bank has already disbursed Rs 1000 crore through this new platform since it was launched at the end of November and expects half of the bank’s retail loans to be originated through this platform by the end of the fiscal ended March 2022.

BoB has offered 1.25 lakh loans so far, roughly 80% od which are personal loans. The personal loans are capped at Rs 50,000 and are currently offered to only the bank’s customers. Handa said BoB plans to increase the maximum ticket size to Rs 2 lakh and also offer the loans to non customers of the bank before the end of the month.

“The programme was targeted to a very narrow base when it was launched. We have 14 crore liability customers which we could look at by using their vintages like screens, balances and churns. We have now seen repayments in it for three to four months and it gives the confidence that its working fine. Of course we still have to season it but we are at a level that can be scaled up further,” Handa said.

The bank will use over 1200 data points and a 100 digital documents like income proofs, income tax returns and a bank statement which is mandatory.

“There are 50 external integrations like utility bills, mapping addresses and 50 internal integrations including fraud reports that we have done to built a data profile around the customer….It is a risk based dynamic approach…not everyone will be requested for everything…bank account statement will give us a purchase history, income profile, ability to repay…if I am unable to built some of those I will ask for more,” Handa said claiming that BoB is the first to use a completely digital lending for new to bank customers.

BoB’s push into retail comes even as the job and salary cuts caused by the Covid-19 pandemic has increased fears of loan defaults especially in the uncollateralised personal loans.

BoB CEO Sanjiv Chadha himself had warned about rising stress in retail and micro, small and medium enterprises (MSMEs) in a conference call following the bank’s third quarter results.

However, Handa the bank’s experience in the last three months makes him confident of these loans.
To be sure at just Rs 1000 crore the current loan book build through this platform is just above 1% of its Rs 1.16 lakh retail loan book.

However BoB also plans to launch new digital lending products for MSMEs over the next one month including loans up to Rs 10 lakh under the Mudra scheme and also gradually move all yearly MSME renewals online.

“We expect 50% of our retail origination and 25% to 30% of SME loans by amount to happen digitally by FY22,” Handa said. Currently about 18% of retail loans are done through this platform.

BoB’s move comes even as RBI has clampdown on non bank digital lending platforms cautioning the public against the use of “unauthorized” lending apps and reiterating that only RBI licensed banks and NBFCs can participate in lending activities.



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BoB reduces repo-linked rates by 10 bps to 6.75%, BFSI News, ET BFSI

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MUMBAI: State-run Bank of Baroda announced a 10 basis points reduction in its repo-linked lending rate from 6.85 per cent to 6.75 per cent, effective from Monday. With this revision in Baroda Repo Linked Lending Rate (BRLLR), the lender is offering home loans at a rate starting from 6.75 per cent and car loans beginning from 7 per cent.

Mortgage loan rates will start at 7.95 per cent and education loans at 6.75 per cent, the bank said in a statement.

“This reduction in BRLLR makes our loans more affordable for customers. We hope that our efforts towards the digital processes help customers avail quick and smooth loans at the most competitive interest rates,” the bank’s General Manager (mortgages and other retail assets) Harshadkumar Solanki said. HV MR

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Bank of Baroda to seek investor in credit card business, says CEO, BFSI News, ET BFSI

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MUMBAI: Bank of Baroda will look for an investor in its credit card business while it also considers a potential listing for its insurance joint venture in the next 18 to 24 months, its chief executive told Reuters.

The moves flagged by Sanjiv Chadha late on Monday are part of efforts by the state-owned bank to strengthen its position in a post-pandemic world, with global consultancy firm McKinsey & Co hired to help it to execute broad transformation plans.

“We may look at getting an investor into the cards business in the next 12 months,” Chadha said of its BoB Financial Solutions operation.

The business, set up in 1994 to house the bank’s credit card portfolio, is a wholly owned subsidiary that offers more than half a million customers a range of Visa and Mastercard-linked card options.

“We are also looking to explore the possibility of listing IndiaFirst Life Insurance Co in the next 18-24 months as the business has been doing very well and we believe it has significant value,” Chadha said.

Bank of Baroda has a 44% stake in the insurance company, with Union Bank of India holding 30% and Carmel Point Investments 26%.

The previously flagged sale of Bank of Baroda’s 40% stake in India International Bank Malaysia Berhad (IIBMB) remains a work in progress, said Chadha, who took the helm in January last year.

Bank of Baroda is also looking at using excess capital from international operations to bolster its domestic business, where returns are higher.

“We’re looking at where the return is sub-optimal and are looking at redeploying that capital back to India,” Chadha said, adding that the bank has no plans to raise capital for at least a year after a Rs 4,500 crore ($617 million) capital increase this month.

While the bank plans to keep the size of its branch network largely unchanged, it does plan to set up a network of agents to offer banking services at locations other than its existing branches or ATMs, Chadha said, adding that this is unlikely to involve any dramatic change in the size of its workforce.

“We are trying to look at how we staff the bank as we move forward,” Chadha said.

“We are exploring hiring people on contract to increase feet on street, how people can work in a hybrid model or work from home, among other things.”



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PSU bank fundraising plans set for revival as bull-run lifts fortunes, BFSI News, ET BFSI

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With the markets on the upswing, public sector banks that struggled to raise funds in December are making hay in the market.

Banks are looking to raise funds to meet regulatory and provisioning requirements and to be ready for the opportunities that a likely boom in the economy may throw up in the coming months.

Bank of Baroda

State-owned Bank of Baroda has raised Rs 4,500 crore equity capital through qualified institutional placement (QIP) on Wednesday.

It allotted 55,07,95,593 equity shares to eligible qualified institutional buyers at an issue price of Rs 81.70 per share against the floor price of Rs 85.98 apiece.

Public sector banks (PSBs) are planning to raise about Rs 10,000 crore through a mix of equity and debt in the remaining two months of the current fiscal ending March to support credit pick up and meet regulatory requirements, the government had said last month.

Union Bank of India

Union Bank plans to raise between Rs 2,000 crore to Rs 3,000 crore through QIP.

The bank has shareholder permission to raise up to Rs 6,800 crore, but was planning to raise only Rs 3,000 crore as the risk appetite for public sector bank shares is still not the best. UBI plans to restrict its target to Rs 3,000 crore and possibly try another issue next fiscal year.

Private sector banks

A clutch of private sector banks also have plans to tap the market.

IDFC First IDFC First Bank’s board will meet on February 18, 2021 “to consider and approve the proposal for raising of funds by way of issue of equity shares/ other equity-linked securities. The bank sees strong strong upcoming growth opportunities.

YES Bank’s shareholders have approved a proposal for raising Rs 10,000 crore capital with the requisite majority.

December raising

Punjab National Bank raised Rs 3800 crore in December 2020 while IDBI Bank raised Rs 1400 crore in twin issues which were priced on the same day in the middle of December. Canara Bank had raised Rs 2000 crore earlier in the month.

PNB had targeted Rs 7,000 crore while IDBI Bank had aimed to raise Rs 2,000 crore. Both issues were short of their targets.

In the last few months, lenders including State Bank of India, Canara Bank and PNB have raised about Rs 50,000 crore from the market.

Bank stocks to shine?

Bank stocks were underperforming last year due to fears of a spike in non-performing assets and their annual returns were as low as 4%. However, they are recovering now.

According to analysts, the banking and finance sector seems to be the most probable candidate poised to outperform the broader markets as the pharma sector has run its course.

What RBI says

RBI Governor Shaktikanta Das has been advising banks to proactively raise capital and not wait for a difficult situation to arise due to the Covid crisis.

Besides, the government has allocated Rs 20,000 crore for capital infusion into PSBs in the current fiscal. Of this, the Finance Ministry has granted Rs 5,500 crore to Punjab & Sind Bank.

During 2019-20, the government made Rs 70,000 crore capital infusion into the PSBs to boost credit for a strong impetus to the economy.



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Bank of Baroda document shows stress may be higher than foreseen

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He added: “The kind of stress we are seeing now is something which is unprecedented and therefore it is likely there may be some slippages which you can’t anticipate.”

A placement document of Bank of Baroda (BoB), for an equity fundraise, shows the lender’s special mention accounts (SMA) ratio surged to 21.57% as on December 31, 2020, from 8% on March 31, 2020. This would suggest that lenders’ collection efficiencies do not adequately reflect the level of stress in the system.

To be fair, the BoB management has signalled that the restructuring scheme may have been unable to address stress in the retail and micro, small and medium enterprises (MSME) segments, and there may be pain ahead.

Bank of Baroda MD and CEO Sanjiv Chadha said in January, “In terms of the known unknowns, things which have not fully played out yet that is where the MSME and retail are…Particularly, retail is the kind of book which was not being stress-tested.”

He added: “The kind of stress we are seeing now is something which is unprecedented and therefore it is likely there may be some slippages which you can’t anticipate.”

The SMA ratio indicates the share of a bank’s loans that have been delinquent for between 1-90 days. BoB’s SMA-0 ratio, or accounts where repayments were delayed by 1-30 days, contributed to much of the surge, rising to 13.44% from 5.47% during the period under review. SMA-2 accounts, where the repayment delay ranges between 61 and 90 days, shot up to 5.52% from 1.41%.

Earlier, a high bounce rate on EMI transactions had raised an alarm about the degree of delinquencies in lenders’ retail books. The National Payments Corporation of India (NPCI) has not yet released this data point for January or thereafter after the bounce rate was found to be persistently high at around 40% for months at a stretch.

There have been concerns, too, about the 90%-plus collection efficiency numbers being reported by banks and non-bank lenders. Analysts are now questioning the wisdom of conflating collection efficiencies with asset quality.

On Monday, Kotak Institutional Equities (KIE) said in a report that the data gives further credence to its view that there is a difference between collection efficiency and probable slippages that could be reported by lenders. “Information asymmetry is quite high and it would be useful for banks to report SMA and 90+DPD (days past due) as it provides a better understanding of the stress,” the report said.

The regulator is not particularly sanguine about bad assets staying under control, either. Loan losses in the banking sector, as measured by the gross non performing asset (GNPA) ratio, could nearly double to 13.5% by September 2021 in a baseline scenario, and to as high as 14.8% in a severe-stress scenario resulting from the pandemic, the Reserve Bank of India (RBI) had said in the December 2020 edition of its financial stability report (FSR).

The ratio of accounts in the SMA-2 category of the private-sector non-financial wholesale segment rose to 7.2% as on November 30, 2020 from 1.7% on September 30, 2020, according to the FSR. The sharp rise in SMA-2 loans coincided with the Supreme Court’s stay on recognition of bad assets after August 31.

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NPA risks easing for largest PSU banks but shortage of funds could hit credit growth

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State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank, and Union Bank of India, have all reported an improvement in their asset quality in the first nine months of the current fiscal year.

Risk of a sharp deterioration in the asset quality of five of the largest PSU banks now seems to be abating with the economic recovery picking up pace, said Moody’s Investors Service in a recent note. However, despite this, the rating agency cautioned that such public sector lenders are likely to remain starved of sufficient capital to absorb unexpected shocks and support credit growth. Banks were expected to see a sharp rise in NPAs last year when the pandemic slowed the Indian economy down but despite the economic slump, the asset quality of banks has seen mild improvement.

Risks reducing for banks

State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank, and Union Bank of India, have all reported an improvement in their asset quality in the first nine months of the current fiscal year. “The gross NPL ratios of the five banks declined by an average of around 100 basis point as of the end of 2020 from a year earlier,” Moody’s said. The estimates even account for loans that have not yet been declared NPAs owing to the Supreme Court order. Lenders are also drawing comfort from the provisions made by them against the expected jump in NPAs.

During the pandemic, various measures were undertaken to support borrowers. This, according to Moody’s has largely helped limited impact of the pandemic on the banks’ asset quality. These measures included loan repayment moratorium, loan restructuring, monetary easing, liquidity infusion, Capital infusion into public sector banks, lowering LCR, among others. “As of the end of December 2020, the five banks restructured 0.7%-2.6% of gross loans, less than our expectations, as the impact of the pandemic on borrowers was not as severe as we had anticipated,” the report said.

Dearth of capital to result in uneven recovery

Despite the green shoots, capital shortage remains a risk. “The banks will continue to face shortages of capital to both absorb any unexpected stress and support credit growth, with high credit costs continuing to suppress profitability,” they added. This shortage in the capital could result in an uneven recovery for the Indian economy with various vulnerable industries facing a setback. The banks’ asset quality can also deteriorate more than anticipated, with exposures to the MSMEs, in particular, posing risks, Moody’s said.

The government planned to infuse Rs 20,000 crore into public sector banks this fiscal year and another Rs 20,000 in the next financial year. While the capital infusions will help the banks meet Basel capital requirements, it will not boost credit growth, according to the report. This would result in some banks turning to the market. Canara Bank and PNB have already raised some capital from equity markets.

On the other hand, in an earlier note, Moody’s said that private sector banks have raised sufficient capital buffers to tide through any hiccups going forward. Asset quality of private lenders remains supported by the same measures that have aided their public sector peers.

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Concerns ahead despite good Q3 results

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Third quarter results of banks have indicated banks show a rise in net profit but concerns are evident ahead. Bank of Baroda reported a standalone net profit of ₹1,061 crore in the third quarter against a net loss of ₹1,407 crore in the year-ago quarter. Private sector lender ICICI Bank reported a 19.1 per cent increase in its standalone net profit in the third quarter of the fiscal at ₹4,939.59 crore.

The bank had a net profit of ₹4,146.46 crore in the same period last fiscal. However, Axis Bank reported a 36.4 per cent drop in its net profit in the third quarter this fiscal despite a robust rise in net interest income as provisions rose sharply. For the quarter ended December 31, 2020, Axis Bank’s standalone net profit stood at ₹1,116.60 crore as against ₹1,757 crore in the same period a year ago.

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Bank of Baroda posts Rs 1,061-crore profit on lower provisions

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At the same time, BoB is not too worried about major retail slippages because unsecured retail loans constitute less than 1% of its loan book. More than 70% of the retail book is made up of home loans.

Bank of Baroda (BoB) on Wednesday reported a Rs 1,061-crore profit for the quarter ended December, against a net loss of Rs 1,407 crore a year ago, as provisions fell 45% year-on-year (y-o-y) to Rs 3,957 crore.

Net interest income (NII) – the difference between interest earned and interest expended – stood at Rs 7,749 crore, was up 9% y-o-y. The net interest margin (NIM) rose 11 basis points (bps) sequentially to 3.07%. The operating profit rose 12.8% y-o-y to Rs 5,591 crore.

The gross NPA ratio at the end of December stood at 8.48%, down 66 bps sequentially. Net NPAs were at 2.39%, 12 bps lower than 2.51% at the end of the September quarter.

BoB has made contingent provisions of Rs 1,522 crore as a prudent measure. Total additional provisions as on December 31 stood at Rs 1,891.5 crore. The provision coverage ratio (PCR) improved to 85.46% from 77.77% a year ago.

The management said any worsening in the asset quality is likely to be led by the retail and MSME segments. Sanjiv Chadha, MD and CEO, said over the last two-three months, there has been a sharp recovery and the main beneficiary of this recovery has been the corporate piece. The return of demand, profits and pricing power have accrued mainly to companies and that adds resilience to the corporate book. Also, companies have already been through a phase of stress in recent years. So, the ones that remain standing are more resilient and offer comfort to the bank.

“There will be stress in some parts of the book, but we have fair handle in terms of how much is there and what are the likely implications. But, in terms of the known-unknowns, things which have not fully played out yet that is where the MSME and retail are,” Chadha said, adding, “Particularly, retail is the kind of book which was not being stress-tested. The kind of stress we are seeing now is something which is unprecedented, and therefore, it is likely that there may be some slippages which you cannot anticipate.”

It has become harder to foresee or address retail stress, Chadha said, because a glance at the bank’s restructured book shows that 80% of it has come from corporates and the retail accounts for a very small figure. “Therefore, we have not been able to address whatever stress might be there at least through the restructuring mode – which means that either people will actually start paying up on time [or] there is a fair possibility that some stress will come through NPAs.”

At the same time, BoB is not too worried about major retail slippages because unsecured retail loans constitute less than 1% of its loan book. More than 70% of the retail book is made up of home loans.

Domestic advances grew 8.31% y-o-y to Rs 6.33 lakh crore at the end of December. The current and savings account (CASA) ratio improved 240 bps y-o-y to 41.2% in Q3FY21. Domestic deposits rose 6.74% y-o-y to Rs 8.35 lakh crore. The bank expects to clock a loan growth of 7-8% in FY21 and raise Rs 2,000-4,000 crore through a qualified institutional placement (QIP) in the current quarter.

BoB’s shares ended up 0.07% at Rs 73.85 on the BSE.

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