Bank of Baroda is reconsidering the scope and scale of its international operations, amidst elevated bad loans across its domestic book. The lender, which reported a 56 percent drop in third quarter profits, has the widest international network among Indian state owned banks.
It is now reassessing whether such a large global network makes sense at a time when it needs to focus on cleaning up its domestic operations.
Bank of Baroda is not keen on being present in every single market and would rather focus on larger markets where it has a better opportunity to serve new customers, PS Jayakumar, managing director and chief executive officer, said in an interview with BloombergQuint. “We would like to have a better presence in markets like Japan and South Korea going forward.”
The bank will be talking to global regulators to see how it can reduce its presence in markets where it does not see a strong business case. As of December 2017, the international business contributed over 24 percent to the total business of the bank. It has 105 overseas offices across 23 countries, shows an investor presentation on the bank’s website.
South African Troubles
One of the international jurisdictions where Bank of Baroda has considerable presence is South Africa. However, the bank’s operations have run into rough weather there.
South African authorities alleged that the influential Gupta family used Bank of Baroda’s banking facilities to transfer large sums of illegal money and influence President Jacob Zuma and his family. In November, Bloomberg News reported that the South African central bank is investigating Bank of Baroda.
“We would not like to comment on anything until the investigation is over. I can tell you that there are many factual inaccuracies in the reports which are emerging,” Jayakumar said. The bank is cooperating with investigative authorities, he said.
A lot of the problems in South Africa are legacy issues from 2010-2012, he said. Since 2015, he said, the bank has made significant efforts to improve compliance through stronger KYC (know your customer) norms and other anti-money laundering norms. It would be unfair, he said, to use the KYC compliance standards of today to measure issues that cropped up back then.
Back home, Bank of Baroda is facing its fair share of bad loan problems.
The bank’s gross non performing asset (NPA) ratio now stands at 11.31 percent, while its net NPA ratio stands at 4.97 percent. During the October-December quarter, the bank saw fresh slippages of Rs 4797 crore.
Over the past few quarters, the bank has increased provisions to strengthen its ability to deal with bad loans. It’s provision coverage ratio now stands at over 68 percent.
The NPA cycle has reached its peak and in about two quarters, things should start looking up, said Jayakumar. The next two financial years hold lot of promise and the bank is optimistic of returning to growth, he said.
During the December ended quarter, the bank’s domestic credit growth stood at 16.38 percent year-on-year. This was driven by retail loan growth of 33.37 percent. Within retail loans, home loan growth surged to 44.33 percent.