A pedestrian passes by a branch of Bank of Baroda in Mumbai. (Photograph: Dhiraj Singh/Bloomberg)

Bank Of Baroda Expects FY19 To Be A Turnaround Year

Bank of Baroda expects a turnaround in the ongoing financial year aided by growth in certain businesses and faster resolution of bad loans under India’s new bankruptcy law.

The state-owned lender posted a loss for the first time in two years in the March-ended quarter as its bad loans continued to soar and provisions nearly tripled. “Rising non-performing assets is a legacy issue governed by the economic environment of the day,” Managing Director PS Jayakumar told BloombergQuint. The slow pace of resolution under earlier stressed asset frameworks had led to a pile-up of bad loans. With the Reserve Bank of India’s revised framework, resolution will gather pace as banks seek to improve their asset quality, Jayakumar said.

We can see from the data across the sector that recovery levels are improving, provision coverage ratios are improving and the net residual issues are diminishing. So the problems would hopefully get resolved.
PS Jayakumar, Managing Director, Bank of Baroda

Recently, debt-laden Bhushan Steel Ltd. became the first large stressed account in RBI’s list of likely defaulters to be resolved under the Insolvency and Bankruptcy Code after it was acquired by Tata Steel Ltd. Lenders, led by State Bank of India, received Rs 35,200 crore to settle their dues worth over Rs 56,000 crore.

Besides, growth indicators for Bank of Baroda look robust, according to Jayakumar. A strong growth in its domestic loan book, including retail lending, is a sign of progress, he said. “The bank is seeing increased lending towards vehicle finance and micro, small and medium enterprises sector.”

Other Highlights

The impending closure of Bank of Baroda’s South Africa business will be completed by September, said Jayakumar. Growth is robust in the bank’s U.S., Europe and U.A.E. branches, he added. In February, the lender had said it wanted to exit South Africa amid allegations that the politically inclined Gupta family used the lender’s network for illicit transactions.

There are some discontinuities arising from the changes in the letters of undertaking usage as the bank has a large share of buyers, Jayakumar said, adding that the lender will explore alternatives. The RBI in March banned letters of undertaking for obtaining buyer’s credit overseas after the Punjab National Bank reported that jewellers Nirav Modi and Mehul Choksi’s firms had borrowed funds overseas based on fraudulent guarantees.

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