The government-owned Bank of Baroda (BoB) is not out of the woods yet. A little more pain – he signaled an increase in bad loans in the December quarter – is possible, analysts say, given the economic downturn. The cost of credit could remain high over the next fiscal year.
According to Lalitabh Shrivastawa, assistant vice president of the financial services entity Sharekhan: “In the September quarter, the bank’s slippages were expected to peak. However, even after removing the impact of the divergence, the sliding quantum remained high in the third quarter (October-December). We expect the deterioration in asset quality to continue in the near term, when growth is expected to be subdued. ”
The bank’s gross non-performing assets stood at Rs 73,140 crore at the end of December, compared to Rs 69,969 crore at the end of September. The figure at the end of December 2018 was Rs 74,322 crore.
The further slip in the third quarter of 2019 was just over Rs 10,000 crore. Of these, Rs 4,500 crore was due to discrepancies (discrepancy between the BoB’s assessment of bad debts and those estimated by the Reserve Bank of India for 2018019). That pushed the slip ratio to 6.78 percent in the third quarter, down from 3.95 percent earlier.
SL Jain, executive director of BoB, said in a meeting with analysts that the divergence was due to two factors. One, the lack of supply that occurs due to the value of the security, which deteriorates over the time you have to supply them. Second, the trump qualification due to interpretation issues. The bank had, he said, forecast in the third quarter all the discrepancies suggested by RBI.
Jain said about Rs 2,000 crore was owed to a large financial services entity and Rs 2,000 to 3,000 crore was owed to the agriculture, retail and small and medium business segments. More from BoB’s loan portfolio than from Dena and Vijay Bank. The latter two merged into BoB at the start of this fiscal year.
Brokerage firm Motilal Oswal says the BoB continues to report weak numbers as further slippage remains high and business growth moderates. The appointment of Sanjiv Chadha as CEO and CEO allays a concern. However, the permanent watchlist and SMA-2 assets in a slowing economy remain a concern, he said. Jain said the bank was not unduly concerned about the watchlist accounts; he watched them regularly.
Vibha Batra, co-founder of Fairconnect Business Advisors, said you have to be careful about the provisioning load on some accounts. The macroeconomic environment would also have an impact on the asset quality profile.