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Photo: Mint

Hope springs for Bank of Baroda as virus effects seen manageable

  • Bank of Baroda expects slippages to be lower in fiscal year 2021 vis-à-vis fiscal year 2020
  • The bank reports reduction in costs and  rise  in  efficiencies post deal with Dena Bank and Vijaya Bank

Bank of Baroda (BoB), now India’s third largest public sector lender after swallowing two of its peers, has showed that a pandemic cannot derail its merger process or its business prospects.

The lender is currently undergoing integration of its systems with Dena Bank and Vijaya Bank, besides standardizing processes across the entities.

The bank’s management gave a positive outlook on asset quality and growth amid the coronavirus pandemic, a refreshing change from the commentary given by most of its peers. To be sure, State Bank of India (SBI), too, had given an optimistic outlook.

Bank of Baroda said the six-month holiday on interest repayments given to borrowers will not result in a spike in bad loans once the moratorium ends in August. For the lender, 65% of its borrowers have opted for the moratorium, but this may fall to 35%, the management said. Moratorium should not be construed as a sign of stress, according to Sanjiv Chadha, managing director and chief executive officer, BoB.

The lender draws its confidence from the fact that many borrowers who opted for renegotiations on payment schedules came back to regular repayment timelines within two months. BoB is also forecasting its slippages in FY21 to be lower than FY20. For FY20, the bank’s fresh slippages were about 25,000 crore. A key assumption is that loans to large companies won’t turn bad. The increase in bad loans will be from retail and those will not be big.

Merged into gains
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Merged into gains

The bank also expects loan growth of 7-8% for FY21, higher than the 6% growth seen last fiscal year. The merger, which took effect 1 April 2019, had kept the bank’s staff preoccupied. Therefore, pushing credit and recovering from borrowers was slow last year. While the pandemic will impact growth, the low base from last year can make FY21 growth numbers look better.

The merger has benefitted the bank in terms of cost reduction and increase in efficiencies. Post-merger, it did not have to open new branches at the same pace it was earlier used to. Moreover, the merger has beefed up its capital, too. To that extent, BoB seems equipped to handle the pandemic risks. That said, BoB has taken precautions. The lender has provided for pandemic-related risks over and above what the regulator had assessed for banks.

Granted, its provisions have fallen year-on-year, but its coverage ratio is still at an enviable 81%.

Investors have taken note of the net profit reported by the bank against the expectation of a loss in the March quarter.

Shares of the bank closed over 2% up on Wednesday

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