Bank of Baroda using Cibil score to curb retail NPAs

Bank of Baroda (BoB) is cherry picking its retail customers to keep its delinquencies under control. More than half of its home loan borrowers have minimal risk with high credit scores.

And to attract the creamy layer of customers, the bank is offering the lowest rates in the market, taking on the home loan biggies like State Bank of India and HDFC Ltd.

The bank was one of the first lenders to base the interest rates for home loans on the Cibil scores. Based on Cibil rating, the interest rates could vary from 8.65% to 9.65%. This risk-based sourcing has improved the bank's portfolio, with 57% of the book comprised of borrowers with a Cibil score of 760 and above.

At a time when banks are cleaning up their balance-sheets, they want to prevent any fresh slippages by giving lower rates of interest. But when the risk is low, the banks are able to give lower rates of interest without impairing repayments. The bank is expecting the retail loans to grow the fastest for the remaining part of the fiscal. Retail loans at BoB were growing at 33.55% over the previous year, with the highest jump seen in auto loans and personal loans, both of which grew at over 39% over the previous year. These figures are for the half year ended September 2018 and the lender expects to grow at a similar pace in the second of the fiscal.

The total retail non-performing assets (NPA) of the bank are at Rs 1,827 crore, which is 2.40% of its total NPA pool. This is an improvement from March 2018 when the bank's retail NPAs were 2.83% of the total NPAs.

Virendra Sethi, general manager in charge of retail loans at BOB, said, "Before we started using the Cibil score for pricing, the borrowers with a score of 760 and above was just 7% of the book." Bank has continued improvement in sourcing; in the first half of FY19, 75% of new customers had a Cibil score of 760 and above.

It is also one of the very few banks that is growing its education loan portfolio. While most of the public sectorlenders have reported a de-growth, BoB has reported a 24% rise in sanctions. The highest growth in this segment is seen in loans to students from premier colleges and loans to fund their studies in foreign countries.

The total outstanding retail loans of the bank at the end of September 2018 was Rs 76,252 crore, of which home loans were at Rs 49,345 crore, auto at Rs 6,660 crore and education loans at Rs 2,285 crore.

Keeping A Watch

• Bank’s 57% of the book comprises borrowers with a Cibil score of 760 and above
• Total retail NPAs of the bank are at Rs 1,827 cr, which is 2.40% of its total NPA pool