February 12, 2018 / 10:06 AM / 9 months ago

India's Bank of Baroda sees performance recovery strengthening from Oct

* Expects most provisions to have been done by H2 of 2018/19

* Retail loans driving growth, sees bad-loan recoveries improving

* Stock jumps as investors cheer margins, bet on bad loans peaking

By Devidutta Tripathy

MUMBAI, Feb 12 (Reuters) - 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, a senior bank executive told Reuters on Monday.

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 percent 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 percent 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 percent 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 percent lower by 0926 GMT in a Mumbai market that was 0.8 percent up. ($1 = 64.2525 Indian rupees) (Reporting by Devidutta Tripathy; Editing by Muralikumar Anantharaman)

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