Bank of Baroda Expects Capital Boost From Bad Loan Recoveries
Pedestrians walk past a Bank of Baroda branch in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Bank of Baroda Expects Capital Boost From Bad Loan Recoveries

India’s Bank of Baroda expects to step up bad loan recoveries this financial year despite the temporary relief on repayments imposed by the central bank during the lockdown on the economy.

That will help the country’s third-largest state-run bank improve its capital ratios and boost new lending, according to Executive Director Shanti Lal Jain.

“We will be focusing on all avenues to recover bad loans including asset sales, one-time settlements,” said Jain, who heads Bank of Baroda’s stressed assets management and credit monitoring. “Recoveries will help in bolstering our capital and give us further room to lend,” he added.

The deferral on loan repayments until the end of August and a ban on filing fresh cases in the bankruptcy courts before September have made it hard for Indian banks to predict the effect of the coronavirus pandemic on their bad loan ratios.

The existing ratio of 9.3% at Indian banks is already the highest among major economies, and McKinsey & Co. predicts the lockdown imposed to contain the coronavirus could push it up by another 7 percentage points.

Some 55% of Bank of Baroda’s loans are subject to payment deferrals, the highest of any state-owned bank. Analysts have also expressed concern about weak capital levels -- the lender’s Tier 1 capital ratio eased to 10.71% at the end of March from 11.45% three months earlier, slightly above the regulatory minimum of 8.8%.

Bank of Baroda aims to raise 45 billion rupees ($595 million) of additional Tier I capital between July and September, which would push up the ratio to 11.4%, Jain said.

The capital worries prompted Nomura Holdings Inc. to cut its recommendation on Bank of Baroda shares to neutral from buy on Thursday. It also cited the bank’s “elevated credit cost due to exposure to vulnerable segments” such as small businesses and shadow lenders.

Still, Bank of Baroda expects to recover about 85 billion rupees of bad loans in the year ending March 2021, compared with 78 billion rupees in the previous year.

Bank of Baroda Expects Capital Boost From Bad Loan Recoveries

And Jain is not too worried about loan repayment, saying some 60% of the bank’s corporate book is rated A or above. He expects to be able to boost loan growth to 7%-8% in the current financial year from 6% last year.

“We are open for business,” Jain said. “There are good companies in every sector.”

©2020 Bloomberg L.P.

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