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The fact that Bank of India swung to a profit in the quarter ended 30 June after being mired in losses for two consecutive quarters was reason enough for the stock to gain nearly 4%. But dig into the details of the bank’s results and the picture gets ugly. Yes, bad loans as a percentage of the loan book have reduced for two consecutive quarters, albeit marginally. Even fresh slippages have dropped to Rs4,037 crore for the June quarter from Rs6,915 crore for the previous quarter. This essentially means that the rate at which loans are turning bad has slowed and even upgrades were better than the previous quarter.
So why should investors worry? Let us look at what the state-owned lender has in the name of troubled accounts. Bank of India has a total exposure of Rs8,200 crore to 10 of the dozen corporate cases that the Reserve Bank of India (RBI) has asked lenders to refer to the Insolvency and Bankruptcy Code (IBC). A lot depends on an untested resolution process to get this stock of loans to perform. The bank has made 60% of the provisions required for these accounts and will have to make another Rs915 crore worth of provisions spread over three-quarters.
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