Home / Markets / Mark To Market /  Bank of Baroda gives hope in a pandemic induced fear of bad loan pile-up

India’s lenders and their investors have been bracing for an increase in an already unmanageable bad loan pile because of the pandemic.

After all, many borrowers have been opting to not repay their equated monthly instalments by way of a moratorium, a sure sign of stress. Bank of Baroda does not think so. In fact, the public sector lender gave a rather hopeful guidance in its post earnings conference call today.

The bank’s management believes that moratorium should not be taken as a proxy of stress. The lender draws its confidence from the fact that many borrowers who opted for renegotiations on payment schedules quickly came back to regular repayment timelines within two months. Bank of Baroda upgraded 1500 crore worth of loans that had the benefit of forbearance in terms of being labelled as bad. The bank said that although 65% of its loan book is under moratorium, this ratio would drop to 35% by August.

To be sure, Bank of Baroda’s peers too have suggested a decline in the moratorium ratio. Even so, most lenders have ben cautious in their outlook on asset quality.

Bank of Baroda, however, is forecasting its slippages in FY20 to not exceed that of FY20. A key reason is that loans to large companies won’t turn bad. The increase in bad loans would be from retail and those would not be big. “Despite the stress that we see on account of covid-19, we expect slippages to be lower than last year," said Sanjiv Chadha, MD and CEO at the bank.

For FY20, the bank’s fresh slippages were about 25,000 crore.

But all this optimism does not mean that the bank hasn’t taken precautions. The lender has provided for pandemic related risks over and above what the regulator has assessed for banks. Nevertheless, its provisions totalled 6844 crore for the March quarter, down 69% from a year ago. To be sure, the bank’s bad loan ratios have improved. Despite the fall in provisions, its coverage ratio is a healthy 81%. The fall in provisions helped the lender report a net profit of 507 crore against an expected net loss by analysts.

The lender’s base case is sanguine on the pandemic’s effects. It remains to be seen whether Bank of Baroda has erred on the side of optimism.

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