Bank of Baroda on Saturday joined the bandwagon of banks hit by mounting provisions for bad loans as the state-owned lender posted its highest ever loss in any quarter at Rs 3,342 crore due to a nearly five-time jump in provisioning.
This is the highest loss suffered by any lender. The bank had reported a net profit of Rs 332 crore in the year-ago period. In the October-December quarter, provisions against bad loans surged to Rs 6,474 crore as against Rs 1,150 last year. The bank made provisions for all weak assets identified under the Reserve Bank of India’s asset quality review.
“High provisions for stressed loans and reversal of part of interest income for accounts now treated as non-performing loans hit the bottom line,” the bank said in a statement. Having made the provisions in one go, Bank of Baroda now expects to report a profit in the fourth quarter ending March.
The bank’s loss came two days after State Bank of India (SBI), the country’s largest lender, reported a 62% drop in profits, again due to bad loans. Inability of companies to service their loans due to an overriding slowdown in the previous couple of years has affected most Indian banks with a majority of their loans turning bad. Concerned with the rising tally, the RBI has tightened norms and asked banks to treat some loans as non-performing even if the actual default has not happened.
After the SBI announced its profit drop on February 11, the BSE Sensex plunged 807 points as investors worried over the wide impact of bad loans in public sector banks and offloaded stocks, wiping out Rs 3 lakh crore in market cap and rolling back the index to levels last seen before the Modi government came to power.
The large quantum of bad loans is likely to impact markets in the coming week too. Religare Securities analyst Parag Jariwala said banks would continue to “face headwinds from their exposure to stressed corporate assets and the potential haircut to revive these stressed assets could be as high as Rs 1 trillion. Of this state-run banks would have to take a haircut of Rs 93,000 crore.”
Bank of Baroda’s gross non-performing assets as percentage of total assets worsened to 9.68% from 3.85% last year. The net NPA ratio also increased to 5.67% from 2.75%.
The bank’s shares closed 1.4% lower at Rs 114.35 apiece at the BSE on Friday.