Covid-19 Impact: Bank Of Baroda Reports Elevated Stress Ahead Of Share Sale

Public sector lender Bank of Baroda has reported elevated levels of stress ahead of its Rs 4,500-crore qualified institutional placement. These stressed loans are spread across different categories, with some overdue for less than 30 days, often on account of technical reasons, to those where repayments are delayed by 30 days and beyond.

Bank of Baroda reported a gross non-performing asset ratio of 8.48% as of Dec. 31, 2020. Had a Supreme Court order barring NPA recognition after Aug. 31, 2020 not been in place, the bank's gross NPA ratio would have been at 9.63%.

The stress extends beyond that.

• Loans overdue by 60 to 90 days, which fall in the special mention accounts of SMA-2 category, account for 5.5% of loans. This set of loans is most likely to slip into NPA category.

• Those overdue by 30 to 60 days, which are categorised as SMA-1, account for 2.6% of total loans.

• SMA-0 accounts, or those overdue by 30 days, stood at 13.4% of total loans. This category, though, is often populated with borrowers who delay payments by a few days due to technical reasons.

If all categories are taken together, overdue loans, including bad loans, are at 30.8% of total loans. Even if loans overdue by 30 days are excluded, the share of non performing and stressed loans is still high at 17.7%.

To be sure, Bank of Baroda reported a 92% collection efficiency as of December when it announced its third quarter results, suggesting that a material portion of the loans overdue up to 90 days may not fall into NPA category.

In its analyst presentation for the quarter ended December released last month, the bank had reported that loans worth 4.41% of total loans were under SMA-1 and 2. However, the analyst presentation only included loans worth Rs 5 crore and above under the two categories.

Loans in the SMA-2 category, which are closest to becoming NPA, included corporate loans worth over Rs 16,000 crore, micro, small and medium enterprise loans worth over Rs 8,200 crore and retail loans worth over Rs 7,800 crore, the bank's presentation showed.

Bank of Baroda has also invoked the Covid-19 restructuring scheme of the Reserve Bank of India for loans worth Rs 9,501 crore as of December, according to the share sale document.

The RBI had stopped the clock on asset classification between March 1 and Aug. 31, 2020 when it had announced a six-month moratorium on repayments. Banks were not allowed count these days when calculating days past default for NPA classification. Thereafter, the RBI permitted a one-time restructuring of stressed loans without a downgrade to the non-performing category. This facility closed in December. Banks have 180 days to implement a restructuring plan, failing which the account gets classified as an NPA. RBI requires banks to make 10% provisions against such accounts.

Given lack of credible data on asset quality, analysts have started asking banks to provide clear data on accounts under SMA so the market can judge asset quality for itself. Kotak Institutional Equities said in a report, "In our view, given the challenges on the ground and lack of credible information of the stress situation across all loan portfolios, it would be useful for lenders to give the SMA 0/1/2 along with 90+DPD that is yet to be recognised.”