India Bank Surges Most in 19 Years on Bet Bad Loans Peaked

  • CEO says lender chose to `bite the bullet' regarding bad loans
  • India's third-biggest lender by assets rallies to lead rivals

Bank of Baroda, India’s third-largest lender by assets, rose the most in 19 years on expectations that bad loans peaked and profit will improve after its biggest quarterly loss in at least a decade.

Bank of Baroda jumped as much as 25 percent, heading for the biggest increase since February 1997, as investors were buoyed by comments Chief Executive Officer P.S. Jayakumar made Saturday following the third-quarter earnings report. The lender rose 23 percent to 139.75 rupees as of 12:42 p.m., leading gains by all 10 members of the S&P BSE India Bank Index, which rose 3.7 percent.

The Mumbai-based company reported Saturday the largest quarterly loss in at least 10 years as provisions for bad loans tripled. The lender found it “sensible to bite the bullet, show the losses and move on,” Jayakumar said in a televised news conference.

“The market is rooting for Bank of Baroda, which decided not to kick the can down the road, and fully provided for all stressed assets at one go,” Hatim Broachwala, a Mumbai-based analyst at Nirmal Bang Institutional Equities, said Monday in a telephone interview. “Profits and asset quality at the lender is expected to remain robust from here on.”

For the three months ended Dec. 31, the lender reported a net loss of 33.4 billion rupees, compared to a profit of 3.3 billion rupees a year earlier. The bank’s gross bad-loan ratio widened to 9.7 percent in the latest quarter, from 5.6 percent.

Soured debt provisions tripled to 61 billion rupees as the bank decided to make entire provisions for bad loans under the Reserve Bank of India’s so-called asset quality review measures. In December, RBI Governor Raghuram Rajan set lenders a March 2017 deadline to clean up their balance sheets by making provisions for all stressed assets.

Before it's here, it's on the Bloomberg Terminal.