Bank Of Baroda

 India's Bank Of Baroda Says Open To Lending To Adani Group:-

MUMBAI, Feb 6 (Reuters) - India's Bank of Baroda (BOB.NS) is open to lending to the Adani Group going forward, provided the embattled conglomerate meets all of the bank's underwriting criteria, a top executive at the state-run lender said on Monday.

Investors have been worried about various banks' exposure to the Adani Group ever since U.S.-based short-seller Hindenburg Research alleged improper use of offshore tax havens and stock manipulation by the conglomerate.

The State Bank of India (SBI.NS), IndusInd Bank (INBK.NS), Punjab National Bank (PNBK.NS) have all tried to allay concerns regarding their exposure to group, while the Reserve Bank of India (RBI) has said that the Indian banking system remains resilient and stable.

On Monday, Bank of Baroda's managing director told Reuters that the lender's outstanding exposure to the group was less than one-fourth of the amount permitted by the central bank for conglomerates, which allows for no more than 25% of a bank's available eligible capital base to be exposed to any one group of connected companies.

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A large percentage of this was towards companies having "very strong" cash flows, limiting any downside to asset quality, Sanjiv Chadha, MD of India's second largest state-run bank by assets, said .

"There is nothing that should really concern us," Chadha said, adding that having top-most underwriting standards was high on the lender's order of priority.

He also said the bank would assess any refinancing request when it came up, but hasn't taken any in-principle decision to stop lending to the Adani Group, and that the bank was currently comfortable with its exposure to it.

Overall, Bank of Baroda was targeting a loan growth of 18% for this financial year, and 15% for 2023-24, he said, much of this would continue to come from the retail sector as the bank remains "conservative" towards corporate lending.

In the October-December quarter, Bank of Baroda's retail advances grew 29.4% year-on-year, while corporate loans rose by 13.3%. Domestic deposits grew 14.5% in the same period.

Chadha also said for funding stressed telecom carrier Vodafone Idea (VODA.NS), the bank will evaluate aspects like the company's competitive position and the government's support among other things, adding that there was "still a long way to go" for things to fall in place.

The Indian government has allowed Vodafone Idea to convert the $2 billion interest on dues owed to the sovereign into equity. Vodafone will issue 16.13 billion shares at 10 rupees a piece worth 161.33 billion rupees.

($1 = 82.5420 Indian rupees)

Reporting by Siddhi Nayak and Nupur Anand in Mumbai; Editing by Nivedita Bhattacharjee

Our Standards: The Thomson Reuters Trust Principles.

Bank Of Baroda Earnings — Check Records Set By Lender In Last Three Months:-

Bank of Baroda (BoB) set several records in the last three months. While it reported highest ever quarterly standalone net profit in third quarter, the bottomline got a boost from healthy growth in net interest income (NII). Additionally, the asset quality metrics showed significant improvement, with the share of bad loans in the overall loan book lowering. Overall, it was a decent quarter for the bank.

Consequently, the lender has now become India's second largest public sector bank as per total business, i.E. The sum of total deposits and total advances.

Let's take a look at the records of the lender

Highest every quarterly profit

Bank of Baroda declared highest ever quarterly standalone net profit of Rs 3,853 crore for the third quarter ended December 2022, which is up by over 75 percent from the year ago quarter of Rs 2,197 crore.

NIM at 31-quarter high

Bank of Baroda’s 13-quarter high loan growth of 19.7 percent YOY drove the 31-quarter high net interest margin (NIM) and 31 quarter high return ratios.

NIM is the difference between the interest a bank pays on its deposits and the yield it earns through lending.

Net NPA at 31-quarter low

Net NPA dropped to a 31-quarter low of 0.99 percent at Rs 8,853.8 crore for the December 2022 ended quarter. In the September quarter, net NPA stood at 1.16 percent at Rs 9,672.2 crore. This was the first time it has slipped below a percent.

CASA ratio at 8-quarter low

The lender's current account and savings account (CASA) — low cost deposits — ratio came down to an eight quarter low of 41.6 percent.

Gross non-performing assets at 30-quarter low

The gross non-performing assets declined to a 30-quarters low of 4.53 percent at Rs 41,857.5 as against 5.31 percent in the July to September quarter of the current financial year.

Decent jump in NII

The net interest income jumped by over 21 percent on a sequential basis to Rs 10,818 crore the poll projection of Rs 10,378.8 crore. This comes on the back of a robust loan growth and an improvement in net interest margins as well.

Asset quality improvement

The bank's asset quality improved as gross non performing assets (NPA) came at 4.53 percent versus 7.25 percent a year ago. Outstanding gross bad loans dipped by 25 percent to Rs 41,857.50 crore. The annualised slippage ratio declined to 1.05 percent for the December quarter.

Sharp rise in cost of deposit

The public sector lender's cost of deposit increased sharply to 4.01 percent from 3.50 percent a year ago. This was mainly driven by its international deposits. Growth in domestic deposits came in at 14.5 percent, while overall deposits grew by 17.5 percent. Low-cost current and savings account deposits grew by 7.6 percent.

Growth in loans

Retail loans grew at the fastest pace of 29.4 percent for the quarter. Corporate loans grew by 13.3 percent and loans to micro, small and medium enterprises grew 11.1 percent year-on-year.

Will Be Able To Maintain NIM: Bank Of Baroda MD:-

                            

Bank of Baroda will be able to maintain or even improve its net interest margin (NIM) going ahead due to structural changes that will work in the bank’s favour, says managing director and chief executive officer Sanjiv Chadha. A higher proportion of retail loans within the overall portfolio will hold the bank in good stead even as the benefit of loan re-pricing is largely behind the banking industry, he tells Ajay Ramanathan. Edited excerpts:

 Will home loan demand be impacted due to high interest rates?  

     As a general proposition, I would believe that the growth that we have seen in loans this year could in part, be due to repressed demand. So there could be a correction there. As far as home loans are concerned and our growth, I think it is something that has got to do with what we have been able to put in place for the last few years. If fact, this was one segment that was lagging for us. It was not far away from the market, but the kind of share that you want was not there. So we have now put in place a multi-channel strategy which is not only dependent on branches. That is working very well. Also, bob World and digital has emerged as a powerful access tool for us. A very large percentage of loans is now being sourced through bob World. That comparative advantage that we have acquired through new channels, through digital is likely to continue. I am fairly confident that even as we go forward, we will continue to gain market share and have growth that is better than industry in home loans and in retail in particular.

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 How do you see the credit card business BoB Financial Solutions shaping up?

That is a business that is getting good traction. That is because we have largely been able to use the network of Bank of Baroda much more effectively and increasingly, we are able to use bob World to get credit card customers. That traction is likely to continue. We however recognise that it is a relatively small player, although growing very fast at more than 50% a year. Therefore if there is possibility of us tying up with someone who has a complementary distribution channel, then that is something that we might consider. We have been running a process informally over the last few months. We have received a fair bit of interest. Over the next few weeks, we would be actually formalising that to make sure that we try to access the best possible partnership to give this business momentum. It could be a fund which has international experience in such businesses. It could be a technology firm, it could also be a player with a large distribution network. So we are looking at all possibilities. It is clear to us that it is not the capital that we need. We are very well capitalised. It is a relatively small business. You do want to make sure that the progress that we have made can be sustained and accelerated further. This is only possible if you get a good partner on board.

 There is now a higher incidence of people converting their CASA deposits into term deposits. How does this impact your balance sheet?

  You could argue that the assets and liability risk diminishes as a demand deposit can be withdrawn anytime while a term deposit is by definition, for a specific term. It does have an impact on margins because you tend to pay more for a term deposit when compared to a savings deposit. But, this is a normal part of the cycle. Also, if the banking industry wants to attract its fair share of deposits, you do need to pay positive real rates. Today, in a lot of categories, the rates have become positive, which means that they are higher than the inflation rate. To that extent, I think it should help us in terms of assets and liability management and accelerating the pace of growth, and banks reclaiming some of the deposits that may have gone to other channels because rates were very low.

 What is your guidance on NIM?

Our NIM is currently at around 3.37% for the quarter, about 3.25% for the year so far. I think we should be able to sustain NIM, may be even improve them as we go forward. This is for a few reasons. It is true that the lag effect and benefit of that in terms of re-pricing is largely behind us. But going ahead, I think there are some structural changes that will work in Bank of Baroda’s favour. One is that is we have seen a significant change in the proportion of retail loans every quarter. This quarter, you would have noticed that the organic retail loan growth is as high as 30%, which is 1.5 times our loan growth. This is our stance. That we would want to grow higher than industry but make sure than retail loan growth is 1.5 time our loan growth so the proportion of retail increases. That should have an impact on our margins. The second thing is that although the deposit rates are now catching up, 50% of our book is corporate and linked to marginal cost of funds-based lending rate (MCLR). The one-year MCLR benefit flows over a period of time, actually over a one-year time because it is only then that your entire book gets re-priced so that is helping us. Third, that even today, there may be some limitations to pricing when it comes to top rated corporates. There could be some improvement there going ahead as liquidity normalises and the lag in deposit growth gets manifested in terms of the choices that banks make in terms of asset underwriting. There are a lot of factors, some structural, some specific to Bank of Baroda, some general which should indicate that margins should be sustained as we go forward.

  What are your predictions for the upcoming monetary policy?

 I think we are pretty much towards the end of the interest rate hike cycle. Maybe, one rate rise and probably again a pause. The central bank may then see how things progress. The external environment is also moving in a similar direction, because otherwise pressure does emanate from other central banks’ action and the impact that it has on currency. I think inflation again seems to be getting under control. So for a variety of reasons, I think we can be fairly positive that the rate increase that we have seen is now largely behind us. The good part is that at the end of the cycle, we are not very far away from where we were two-to-three years ago. This means that interest rates have only normalised, they have not come to any kind of peak. Therefore, any disruptive impact that interest rates could have had, which is likely in economies where interest rates are 30-year highs is not likely to be there in India. So we should be able to absorb these interest rate increases and continue with our growth story.

 What is the process that you are adopting with regard to the Nainital Bank stake sale? What is the criteria that you are looking at for buyers?

We have a statutory obligation and a regulatory obligation which is there. No bank can hold more than 25-30% in another bank. We have been holding this stake for more than 40 years now. Therefore, this is an untenable position as per the Banking Regulation Act. As far as the process is concerned, we want to make sure that we do remain a significant shareholder for some time. That would be important both for regulatory comfort and also a smooth transition. We have made a lot of investments in technology, so I think the bank would have a great future with the right sponsors, including Bank of Baroda. Even as we speak for ourselves, Bank of Baroda has been benefitted from the digital revolution. Therefore, scale has become less important. There was a time when you could have argued that there is no space for a small bank. Today, there is space for a small bank that is digitally savvy. With the right sponsors and the right support, it can actually do very well. We would want to run a process where we tracked interest from the right kind of partners and make sure that the bank has a bright future going ahead. It will be a transparent process and something that should yield us results in terms of getting a partner or partners who are able to meet the criteria of the Reserve Bank of India in terms of ‘fit and proper’, and who can contribute to the onward journey of Nainital Bank. It is still early days but I think we have got very good interest. I do believe that we should make good progress with what we are trying to do.

 Will there be a reluctance among banks to lend to large conglomerates in the wake of the Adani group saga?

We can only speak for ourselves. We have been very conscious that the corporate segment is a great segment when the going is good but there is also concentration risk which comes from that. That is something that you need to manage. If you can help it, you should try to have a more diversified portfolio. Every quarter, our proportion of retail loans is growing. It is our stated position that we would want to grow at market or better. But retail growth should be 1.5 times that, and corporate only 0.7 times that. That has meant that since we are not chasing loan growth on the corporate side, we are able to choose exposures. We are able to make sure that it is diversified. Therefore, today you would find that our exposure is very diversified as a consequence of the fact that we are not chasing corporate loan growth. To the case in point of the group that you talked of, it does not figure in the top 15 groups for the banks when measured by way of the Reserve Bank of India’s large exposure framework. What you can lend to any group, our exposure to this group is only one-fourth of that. Nearly a third of this exposure is in joint venture with public sector companies or guaranteed by the public sector. As far as Bank of Baroda is concerned, I am fully assured that the improvement that you have seen in the bank’s performance in terms of credit cost, credit growth and return on equity is going to be unimpaired and will continue. As far as this group is concerned, we have a successful operating companies in a diverse range of industries, all of which, work to different cycles. I think there is very little to worry about. Also, we underwrite loans on the basis of book value. The movement in the share prices does not alter the book value even by a single paisa. Your leverage ratio remains constant, your asset price remains constant, and your cash flow remains constant. So, there is no reason to suppose that this can be any reason for discomfort.