Bank of Baroda to clean up its balance sheet in 4Q: PS Jayakumar
India's Bank of Baroda, which decided to clean up its balance sheet at one go in the third quarter resulting in a loss of Rs.3,342 crore for the Oct-December period, is now rebalancing its portfolio.
This will release capital, helping the bank report a profit in the fourth quarter.
PS Jayakumar, Managing Director and Chief Executive Officer of the second largest lender of the country, said in an interview. He said we have to rebalance the portfolio and we have to move to better rated corporate entities. What we have done is bringing back the relation managers for the large corporate borrowers so that they can deal with one fixed person. We are also centralizing the large corporate into a fewer number of branches. Third, we are defining a target market and going for sales so that we can target the right kind of customers. Fourth, we are adding a fair number of sector specialists so that an informed view is taken while doing business. And fifth, we are expediting the decision-making process. At the end of the day we have to improve the returns of the corporate portfolio, which is 50 per cent of the balance sheet.
About rebalancing the portfolio, he said the other thing which we are clearly doing is exiting a lot of portfolios. For example, we have participated on an overseas loan syndication for some clients.
He said we know the customer but they don't know us. Sometimes, you want to shed those assets and lighten the risk weight. Because, knowing the customer portfolio is important for us. Also, if the rating is better, for the same amount of capital, you can take more exposure. There are also many sectors like automobiles, pharmaceuticals which we are under represented. We want to increase our presence in these sectors. There is an opportunity to become more efficient. Those efficiencies translate into reallocation of portfolio. We are moving away from cold relationship assets to warm relationship assets. That process gives us some amount of leeway on capital.
Whatever we thought was a non-performing asset it has been identified. Now, there are certain scenarios that could emerge. It is difficult to lay out one single sequence of events that could happen. So, let us say we have stress tested our business which we have done. The risks for us are largely around the restructured portfolio. That is the customers who are paying, but payments are getting delayed. So far as the corporate portfolios are concerned, which the RBI fleshed out the embedded risks, there are not any further embedded risks. The corporate portfolio is reasonably stable. We can think of some accounts being upgraded. The upgradation to a large extent will depend on how the economy performs. But there are client-specific activities, like a project which was stalled for some reasons, has now got the clearances or a client is selling assets to lower debt.
About bad loan portfolio, he said so, in a Rs.40,000 crore portfolio (total gross NPA), we have a scenario where we can recover Rs.5,000 crore. The balance of the bad loans could slip to doubtful assets. But what you gain from recovery and what you make provision for doubtful assets, the incremental amount may not be that large, may be about Rs.1,000 crore.
The second risk we have is that we have a restructured portfolio of Rs.17,000 crore, out of which Rs.3,300 crore are from discoms, and no further deterioration is possible since states guarantees are there. Out of the remaining amount of restructured portfolio, we have gone account-by-account, and expect health of borrowers' worth Rs.6,000 crore to improve. The remaining Rs.8,000 crore is potentially at risk, for which we have already provided 5 per cent. Now, we are left with accounts which are in the second level of special mention accounts (SMA-2), that is, overdue for more than 60 days but less than 90 days.