Bank of Baroda to infuse Rs 708 crore to refinance six stressed accounts

Saddled with bad debts, Bank of Baroda (BoB) plans to refinance its stressed corporate accounts and change management in certain cases.

The bank, which is also embroiled in a forex remittance scam, will infuse Rs 708 crore to refinance six corporate accounts, majority of which are power companies, under the special Reserve Bank of India refinance scheme popularly called 5/25.

It will also undertake Strategic Debt Restructuring (SDR) in three corporate accounts including Electrosteels and got an in-principle approval for change of management in Parekh Aluminium and Monnet Ispat (overseas account).

Under 5/25 scheme, loans can be refinanced every five or seven years up to a maximum period of 25 years. According to a report submitted to the Parliamentary Standing Committee on Finance, the companies that will receive refinance are Uttam Galva Mettalics, which will get a refinance of Rs 210 crore for a tenure of 10 years. Bhushan Power & Steel will get Rs 180 crore for 22 years. The bank is considering giving Bajrang Power additional refinance of Rs 193 crore for over 14 years. Adani Power in Maharashtra and GMR Kamalanga will get Rs 17 crore of additional finance each with a tenures of 15 and 22 years respectively.

Under SDR, the bank now has the leeway to ensure that shareholders bear the first loss rather than the debt holders. RBI allows transfer of equity shares of promoters to lenders to compensate for their losses.

Gross bad loans of the bank at the end of the second quarter ended September 30, 2015, were Rs 23,710 with fresh additions of Rs 6,816.45 during the quarter. This bring BoB among banks with highest percentage of fresh loans turning sour. The bad loans are the highest from the bank's corporate clients, both large, medium and SME (small and medium enterprises).

In many instances where the loans are restructured by extending the tenure, the promoters are unable to come out of financial stress due to operational and managerial inefficiencies though the lenders may have made big sacrifices.

In such cases banks are considering SDRs in the hope that a management change can revive the company. The acquisition of shares under the SDR mechanism will also be exempted from regulatory ceilings or restrictions on capital market exposures, investment in para-banking activities and intra-group exposure. The shares acquired and held by banks under SDR scheme will also be exempted from mark-to market requirements.

BoB reported an 88.73% fall in net profit in second quarter to Rs 124.48 crore, led by high provisioning for the rising bad loans and also for the frauds detected. Provisioning other than tax and contingencies rose a sharp 113.02% from the same period last year to Rs 1,891.70 crore. Increase in non-tax provisions was mainly on account of higher provisions against NPAs during the second quarter, the bank said.