Banks could discover that more of their loans become non-performing than what they had anticipated for as the Indian economy gets pounded by the coronavirus pandemic.

The warning of rising stress in the coming months has come from the head of public sector lender Bank of Baroda. This build up could be in the retail and small business segments.

“While we have a fair amount of visibility in the corporate book, the retail and SME books are not stress tested. What we are seeing now is something that is unprecedented and it is likely that there may be some slippages that you cannot anticipate," said Bank of Baroda chief executive officer Sanjiv Chadha.

The bank, however, has a fair handle on the corporate book and we are confident about the asset quality going ahead,” he added.

Bank of Baroda has exercised a one-time restructuring for Rs 9,500 crore of loans. While 80% of the recast has come from corporates, Chadha said in retail it is a “very small figure”. A “fair amount of stress in retail and micro, small and medium enterprises” is still there and “that will play out over the next few months”. So “this stress has not been addressed” and there is a “fair possibility that some of it will come through non-performing assets”.

Bank of Baroda’s gross NPAs, though better than the previous fiscal, stood at 8.48% in the December quarter, from 9.14% in the preceding quarter and 10.43% a year ago. Net NPAs declined by 12 bps sequentially to 2.39%.

The bank’s gross NPA ratio would have been higher at 9.63% and net NPAs at 3.36% if the Supreme Court’s standstill clause would have not been there. On 3 September, Supreme Court passed an order asking banks not to classify certain assets as bad if not already done by 31 August.

The bank’s unsecured retail loans are less than 1% of the loan book. Chadha explained that home loans accounted for more than 70% of the bank’s retail loan book. About 73% of all retail borrowers are credit scored over 725. “This indicates our stringent underwriting standards,” he said.

NPA provision coverage ratio of the bank stood at 85.46%. As of December, the bank made Covid-19 provisions of Rs 1,709.35 crore.

Bank of Baroda reported a net profit of Rs 1,061 crore in the December quarter compared to a loss of Rs 1,407 crore a year ago. While retail loans grew, margins improved and provisions fell.

Income fell to Rs 20,664 crore in the October-December quarter, from Rs 21,809 crore in the same quarter of the previous fiscal.

Domestic advances climbed 8.31% to Rs 6.33 trillion. This was led by organic retail and agriculture loans, which grew at 13.78% and 14.08%, respectively.

Domestic deposits grew 6.74% to Rs 8.34 trillion. Low-cost current and savings accounts deposits (CASA) rose 13.21% to Rs 3.43 trillion.

Domestic net interest margin (NIM) increased to 3.07% versus 2.88% a year ago. Provisions for NPAs dropped 69% year-on-year to Rs 2,080 crore from Rs 6,621 crore a year earlier, thus contributing to the bank's bottom line.

The bank is planning to raise Rs 2,000-4,000 crore through a qualified institutional placement (QIP) of shares in the current quarter.