Bank of Baroda does not foresee any challenges in adhering to the central bank's proposed loan-loss mechanism given its improved asset quality ratios and will be able to maintain credit costs, a top official at the bank said.

The State-run lender's credit cost, the projected quantum of potential losses on total loans, was at 0.14% in Q4, down from 0.37% the previous quarter and 2.69% a year ago.

Its gross non-performing assets (NPA) ratio fell to 3.79% in the fourth quarter from 4.53% in the previous quarter, while its net NPA ratio fell to 0.89% from 0.99% for the same period.

"I think we are very well protected," said Sanjiv Chadha, Managing Director and Chief Executive Officer.

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"Our normalised credit cost is below 1% and we should be able to take care of any ECL (expected credit loss) provisions within this so that our earnings trajectory is not disturbed."

The Reserve Bank of India (RBI) released a discussion paper in January suggesting that banks switch to the ECL method, in which lenders assess the probability of default upfront and provision accordingly, rather than after a default occurs, as is the current norm.

The RBI is yet to release the final guidelines or timeline for making the switch, but banks are gearing up for it. As per Morgan Stanley, switching could hit State-run banks to the extent of 1% to 2.5% of loans.

The Indian Banks' Association has asked the RBI to give lenders a year to adhere to the norms, its chief said on Tuesday.

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Bank of Baroda's Chadha expects to maintain credit costs below 1% for FY24 and the slippage ratio - the rate at which a loan becomes stressed - in the 1%-1.25% range against the 1.02% as of end-March.

The lender also sees scope to improve its gross and net NPA ratios, Chadha said, adding that the bank is targeting bad loan recoveries worth ₹10,000 crore to ₹12,000 crore in FY24.

It is also targeting a "moderate" credit growth of 12%-13% and aims to sustain net interest margins at around 3.31%, Chadha added.

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