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Sanjiv Chadha, chief executive, Bank of Baroda
Sanjiv Chadha, chief executive, Bank of Baroda

BoB chief warns of rising stress in retail and small businesses

Public sector lender Bank of Baroda (BoB) on Wednesday warned of rising stress in the coming months, possibly emanating from the retail and small business segments as a fallout of covid-19 stress

Public sector lender Bank of Baroda (BoB) on Wednesday warned of rising stress in the coming months, possibly emanating from the retail and small business segments as a fallout of covid-19 stress.

“The kind of stress we are seeing now is something that is unprecedented and, therefore, it is likely that there may be some slippages that you cannot anticipate," said Sanjiv Chadha, chief executive officer, Bank of Baroda.

There is no argument about the existence of stress in the system and while there will be stress in some parts of the book, the bank has a fair handle in terms of how much is there and what are the likely implications, Chadha told reporters.

The bank has invoked a one-time restructuring for 9,500 crore of loans.

“There is still a fair bit of stress in micro, small and medium enterprises (MSMEs) and retail that will play out over the next few months. If you were to look at the break-up in terms of our recasts, 80% has come from corporates, and the retail recast is a very small figure," the CEO said.

Therefore, whatever stress might be there has not been addressed, at least through the restructuring mode, he said.

“This means that people could actually start paying up on time, but there is a fair possibility that some stress will come through non-performing assets (NPAs)," Chadha said.

The lender’s gross NPAs as a percentage of total advances were 8.48% in the December quarter and net bad loan ratio was 2.39%.

While its asset quality has improved in the quarter, its gross NPA ratio would have been higher at 9.63% had it not been for a 3 September Supreme Court order that asked banks not to classify certain assets as bad if not already done by 31 August.

“However, 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 that was not being stress tested," said Chadha.

Unsecured retail loans, typically seen as riskier assets, are less than 1% of BoB’s loan book, Chadha explained. Besides, more than 70% of the bank’s retail loan book comprises home loans. About 73% of all retail borrowers are credit scored over 725, indicating stringent underwriting standards, he said.

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