Corporate debt is almost unaffected in the second wave of Covid-19: Bank of Baroda

The country’s second-largest bank - the Bank of Baroda (BoB) can trust and will depend on the strength of corporate debt to overcome the financial stress of the second wave of Covid-19. Sanjiv Chadha, chief executive of the Bank of Baroda said on Saturday that the second wave is concerned, the bank is likely to see pretty much a repeat of what it witnessed last year. Small businesses and the retail sector are more affected in the second wave and they could cause some kind of hardship. 

“Last year, we were not confident what would happen to the corporate sector. This time, we can say with confidence that the second wave has largely left the large corporate businesses untouched," said Chadha.

The second-largest lender of the country has a corporate debt of ₹2.92 trillion, almost unchanged from the last financial year. It is retail debt was ₹1.2 trillion whereas micro, small and medium enterprises (MSME) debt stood at ₹96,200 crores.

According to Chadha, even for corporate accounts that were relatively weaker and had got restructured last year, there would be no need to revisit in most cases.

“Given the fact that 50% of our book is corporate, it is the performance of the corporate debt which will define the overall impact on the bank," he said, adding that as was the case with the first wave, the impact is going to be more as far as retail is concerned and significantly more for MSMEs.

So, the areas of concern remain the MSME sector and to a lesser extent, the retail sector. However, Chadha believes that some of the recent measures announced by the Reserve Bank of India (RBI), like another round of debt recast, will aid borrowers.

RBI stepped in to rescue and small business borrowers with loans of up to ₹25 crores, vide its Circular dated 5-5-2021, allowing lenders to restructure their debt and offer some respite from the stress induced by the second wave of the covid-19 pandemic. Eligible categories would include consumer credit, education loans, loans given for the creation or enhancement of immovable assets like housing, and loans for investment in financial assets like shares and debentures. In a separate notification, the central bank also allowed MSMEs with loans of up to ₹25 crores to be eligible for recast under what it calls Resolution Framework 2.0.

“We have the tools to address the issues that would arise from the second wave. We believe that our overall credit quality continues to improve, largely driven by the fact that the corporate credit book will keep on moving," Sanjiv Chadha said.

On retail loans, while there will be some stress but since the bank underwrites solely based on credit scores the quality of the book is very good and withstood the impact of the pandemic, he said.

“Post-moratorium, our borrowers came back and paid us, and we also have the additional possibility for again addressing any issue through restructuring. However, I feel that retail borrowers are very careful in opting for recasts. While there might be some delinquency in one or two installments, but the overall book should come through," he added.