Bank of Baroda, India’s third-biggest state-run lender, expects a recovery in its financial performance to quicken from the second half of the next fiscal year as soured-loan provisions gradually decline, in a published media interaction a senior bank executive mentioned.
The bank reported after the market’s close on Friday that third-quarter net profit more than halved because the funds it set aside for soured loans nearly doubled from a year earlier. Its shares, however, jumped as much as 10.7 per cent on Monday as investors took comfort from the bank’s stronger operating performance and bet that bad loans were peaking.
Indian lenders are staring at at least one more quarter of heavy provisioning as the central bank has ordered them to achieve by March an at least 50 per cent provision cover on all loans to companies undergoing bankruptcy proceedings.
Bank of Baroda needs to make about 8.6 billion rupees ($134 million) more of provisions for the 26 of its borrowers that are undergoing bankruptcy proceedings after a central bank order, Papia Sengupta, an executive director at the bank, said in an interview.
Still, overall provisions for the current quarter should remain at similar levels as the 31.55 billion rupees made in the third quarter, she said.
Asked when the lender, whose profits have been under pressure for the past more than two years, will see faster improvement in its performance, Sengupta said: “I think we’ll have to wait for the second half of the next (fiscal) year.” The bank’s fiscal year starts on April 1.
“We would have been done with most of the provisioning by then. (Also), I think some of the recovery will start coming in, at least the NCLT cases,” she said, referring to the borrowers undergoing bankruptcy proceedings at National Company Law Tribunal (NCLT).
Bank of Baroda will continue to set aside funds to further boost its provision coverage ratio, which at 68 per cent is already one of the highest among Indian state-run banks. Sengupta also said the bank aimed to prevent its net non-performing loans, which stood at 198.52 billion rupees at end-December, from crossing 200 billion rupees.
The bank’s renewed focus on retail loans with faster processing based on credit scores was paying off, Sengupta said. A “war room” set up to chase the top 200 stressed borrowers should also boost recoveries, she said.
Top lender State Bank of India, which reported a surprise third-quarter loss last Friday on higher bad-loan provisions, has guided for an improvement in its performance in the new financial year that begins on April 1.
Its shares were trading 2.5 per cent lower by 0926 GMT in a Mumbai market that was 0.8 per cent up.