Fitch Affirms Bank of Baroda at ‘BBB’

Fitch Rates – Singapore / Mumbai – 30 April 2020: Fitch Ratings confirm India-based Baroda’s (BOB) Bank and subsidiaries owned by Bank Baroda (New Zealand) Limited (BOB NZ) Automatic Rates (IDR) in ‘BBB-‘. The outlook is stable. The agency simultaneously reduced BOB’s Viability Rating (VR) by one notch to ‘bb-‘, from ‘bb’.

Measurement actions are driven by the rapid deterioration of the banking system in India following the coronavirus epidemic and measures to curb its spread.

Fitch cut its forecast for India’s GDP growth for the financial year ending March 2021 (FY21) to 0.8% from the 5.1% pre-epidemic forecast (FY20: 4.9%). The revised rating reflects the potential impact of the sharp decline in business and consumer performance in all sectors, which will create new asset quality challenges in Indian banks. Fitch reduced the natural performance rate of Indian banks to ‘bb’ from ‘bb +’ in March 2020 while maintaining a negative outlook due to the uncertainty surrounding the severity and duration of the disease and the associated effects on Indian banks from economic activity limits. This is in addition to the assistance provided by the authorities to finance the economy and protect borrowers, which indirectly benefits banks. The reason behind these rating of the bank is its loan portfolio including personal loans and mortgage loans which consists of a major portion of Bank of Baroda Gold Loan.

VR downgrades show a very high risk of underperforming bank losses, which are at risk of deteriorating asset quality. We expect the bank’s financial performance to deteriorate, although the deterioration in the quality of the assets is not apparent until the end of the suspension of improper lending control, which may not be until September 2020 or more. The uncertainty surrounding the seriousness of the impact this epidemic will have on key credit metrics and the potential for negative impact on BOB internal access means there is a risk of further misconduct in VR. However, we expect support from the government, if necessary, to remain strong.

In today’s time where so many lenders have come up with their exciting deals with the offering of Gold Loans, it has become difficult for the borrowers to decide and select one single lender that suits their needs and situations the best.

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