Bank of Baroda notifies of increasing stress in retail and small businesses


Indian multinational and financial services company, Bank of Baroda (BoB) on 27th January 2021 notified of increased stress in the upcoming months. This is probably emerging from the retail and small business segments as a fallout of COVID-19 stress.

Sanjiv Chadha, chief executive officer of Bank of Baroda said, “The kind of stress we are seeing now is something that is unprecedented and, therefore, it is likely that there may be some slippages that you cannot anticipate.”

There isn’t any disagreement about stress being a part of the system. Although there will be pressure in some parts of the book, the bank has a fair handle in terms of how much is there and what are the likely implications, Chadha told reporters.

The bank has an imposed a one-time restructuring for 9,500 crore of loans.

The CEO said, “There is still a fair bit of stress in micro, small and medium enterprises (MSMEs) and retail that will play out over the next few months. If you were to look at the break-up in terms of our recasts, 80% has come from corporates, and the retail recast is a very small figure.” Hence, whatever stress might be there has not been addressed, at least through the restructuring mode, he said.

“This means that people could actually start paying up on time, but there is a fair possibility that some stress will come through non-performing assets (NPAs),” Chadha said.

The lender’s gross NPAs as a percentage of total advances were 8.48% and net bad loan ratio was 2.39% in the quarter ended December.

While its asset quality has upgraded in the quarter, its gross NPA ratio would have been higher at 9.63% had it not been for the September 3, 2020, Supreme Court order that asked banks not to classify certain assets as bad if not already done by 31 August. 

“However, in terms of the known unknowns, things which have not fully played out yet, that is where the MSME and retail are. Particularly, retail is the kind of book that was not being stress-tested,” said Chadha.

Unsecured retail loans are usually seen as riskier assets, are less than 1% of Bank of Baroda’s loan book, Chadha explained. Apart from that more than 70% of the bank’s retail loan book comprises home loans. About 73% of all retail borrowers are credit scored over 725, indicating strict underwriting standards, according to him.