Bank of Baroda sees pace of bad-loan growth slowing

MUMBAI (Reuters) - India's second-biggest state-run lender by assets Bank of Baroda forecast growth in troubled loans to slow in the coming quarters due to its moves to curb risk, as it posted a quarterly profit that beat estimates and sent its shares soaring.

The bank, however, cautioned that the bad-loans pain was not entirely over, with some its peers such as Bank of India , the third-biggest state-run lender, reporting a spike in its bad loans for its fiscal first quarter.

Mumbai-based Bank of Baroda reported on Thursday a net profit of 10.52 billion rupees ($164.50 million) for the three months to June 30 that was about 23 percent lower than the year-ago quarter but higher than analysts' average estimate of 9.29 billion rupees.

Even as its gross bad loans as a percentage of total loans rose to 4.13 percent from 3.72 percent in the previous quarter, Bank of Baroda said the additions to bad loans during the quarter had been lower than its initial expectations.

"I would love to say that we have seen the worst of the NPAs (non-performing assets) and the restructured and the stressed assets," Bank of Baroda Chief Executive Ranjan Dhawan told a news conference.

"But I am conscious of the fact that other banks have also declared very high levels of stressed assets. So I feel that the pain is not entirely over," he said.

Kotak Securities analyst Saday Sinha said Bank of Baroda's stressed loans at 8.2 percent were lower than its peers and called it a "positive".

Indian banks' bad-loan ratio has almost doubled in the past three years amid weak economic growth that limited companies' ability to service debt. State-run lenders, who dominate India's banking sector, account for majority of the sour debt.

Bank of Baroda is lending selectively to companies and is instead expanding faster in retail loans, Dhawan said. The bank is staying away from commodities, particularly steel, he said. Steelmakers have been hit by weak prices and surging imports from China.

"We are very very choosy, we hardly take any steel account," Dhawan said, adding other sectors the bank was "careful" about lending to included textiles, infrastructure and real estate.

Bank of Baroda shares were up 9.5 percent on Thursday afternoon, after rising as much as 10.5 percent.

($1 = 63.9500 rupees)

(Reporting by Devidutta Tripathy; Additional reporting by Karen Rebelo; Editing by Muralikumar Anantharaman)