Home / Industry / Banking /  Repayment delays at Bank of Baroda surge in Mar-Dec

Loans where repayments are delayed up to 90 days have surged at public sector lender Bank of Baroda (BoB) between March and December, raising concerns that stress is building up.

If the loans remain unpaid beyond 90 days, they are classified as non-performing assets (NPAs).

In a recent qualified institutional placement (QIP) document, India’s second largest state-owned bank said that such stressed loans, which are yet to turn non-performing, have risen sharply from 8.01% of its domestic loan book as on 31 March 2020, to 21.57% as on 31 December. In other words, special mention accounts (SMAs) or loans delayed by 1-90 days have increased by 13.56 percentage points since covid-19 struck.

Under RBI norms, borrowers must be categorized into special mention accounts based on their repayment delays. Special mention account-0 (SMA- 0) loans are where the repayment overdue is between one to 30 days, SMA-1 (between 31 to 60 days) and SMA-2 (61-90 days).

Among these, SMA-2 loans are closely tracked since they are on the brink of turning bad. The Indian banking sector had NPAs of 7.38 trillion as of December, compared to 7.88 trillion in the same period last year.

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Graphic Mint

“The lack of data on the situation on the ground has made understanding of the recovery quite hard. We have had to rely extensively on management commentary, small sample size surveys and discussions with channel partners, which are usually less extensive," analysts at Kotak Institutional Equities said in a report on Monday.

For BoB, SMA-2 loans increased to 5.52% of its domestic loan book in December, from 1.41% in March 2020, indicating rising stress among borrowers. Retail loans, seen as a more secure asset class as compared to larger corporate loans, now have an SMA-2 ratio of 1.24% in December, up 66 basis points (bps) from 31 March 2020.

“We understand that the loss-given-default is unlikely to be as high as we saw in the corporate NPA cycle given the nature of stress that is going under stress, but in the short term, there is an accounting difference between slippages and provision for these slippages as compared to collections efficiency," the Kotak Institutional Equities report cited above said.


Shayan Ghosh

Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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