Bank of Baroda says recent NMC settlement based on commercial considerations, anticipation of legal overhang

Mumbai – The recent settlement of the legacy litigation case of NMC Group was based on the commercial consideration for the bank and expectation of a long legal overhang on the lender, managing director and chief executive officer Debadatta Chand said in the bank’s Q1 earnings call, adding that the bank had “strong basis” to settle the case.

“We thought that it is appropriate for us to settle the case and that has been done without any admission of any liability or wrongdoings,” Chand said. The objective of the bank has been to give a “pristine balance sheet in terms of not having any overhang in terms of any legacy issue”.

The settlement amount covered the entirety of the bank’s liability in the case, which was $600 million, Chand said, refusing to divulge other details, saying that the settlement was a bilateral confidential agreement and that the matter is still sub judice vis-à-vis other defendants.

The state-owned bank entered into an out-of-pocket agreement on 1 July 2026 to settle the case for $600 million, or around ₹5,700 crore. The matter was related to the years-long litigation linked to the collapse of United Arab Emirates (UAE)-based healthcare provider NMC Health.

The administrators handling the bankruptcy of NMC Group had sued Bank of Baroda, former promoter of NMC Group, B.R. Shetty and former NMC executive Prashant Manghat before courts in the Abu Dhabi Global Market and the UK. The administrators alleged that NMC Group collapsed because of fraud committed by some shareholders, senior management and employees between 2012 and 2020. It also alleged that Bank of Baroda’s Abu Dhabi branch helped process financing transactions and failed to undertake adequate anti-money laundering, know-your-customer (KYC) and other due diligence checks, allowing the alleged fraud to continue and enabling NMC Health and its related entities to conceal their true financial position.

Profit takes a direct hit

The settlement marks a shift from the bank’s position in its FY26 annual report, in which it said that claims brought by the administrators of NMC Group’s bankruptcy could not be crystallised because of its “robust defence in facts and law”, indicating that the bank was in a strong position.

Chand said that since then, what has changed is the stage and criticality of the trial and the negotiation process, based on which the decision to settle was taken, adding that the settlement amount vis-à-vis the oral claim and the total quantum of claim against all the parties has been “very, very low”.

“In that way, it was prudent for the bank to settle the case based on the trial stage,” he said, adding that recovery efforts against the principal individual debt will continue.

However, with no provision to make a specific provision for litigation or settlement, the bank had to bear the entire impact from its balance sheet. The one-time payout, equivalent to nearly 28% of the lender’s FY26 net profit of ₹20,021 crore, hit the bank’s profitability in the first quarter of the current financial year.

The lender posted a net profit of ₹1,207 crore for the quarter, which would have been around ₹5,528 crore without this hit. The profit after tax was 71.8% lower on the year and 77.2% lower sequentially.

A 1.3% on year decline in operating profit to ₹8,127 crore also weighed on the bottom line for the quarter. This was largely due to a 25.8% decline in other income to ₹3,470 crore, even as net interest income rose 9.5% to ₹12,524 crore.

Loan growth stays strong

Chand said that the bank had the option to utilise the floating provisions of around ₹2,500 crore but chose to reserve them for the transition to the expected credit loss (ECL) effective from 1 April 2027. The bank estimates a total capital impact of ₹12,500 crore from the transition, spread over 4-5 years.

As such, the bank has, since the case being initiated, changed the underwriting model for the international business, and has strengthened its governance structure, processes, risk management structure and the compliance framework.

Global advances of the bank grew 17.4% on year to ₹14.2 trillion as of 30 June, led by 16.1% growth in retail domestic loans ₹11.5 trillion and 23.3% increase in international loans to ₹2.7 trillion. Despite the strong growth, the bank remained wary of revising its credit growth guidance of 12-14% for FY27, anticipating geopolitical headwinds facing the global and Indian economy.

Total deposits were up 13.8% at ₹16.3 trillion as at the end of June, led by a 14.7% rise in domestic deposits to ₹13.8 trillion and 8.9% in international deposits to ₹2.5 trillion.

The bank has so far garnered around $700 million of foreign currency non-resident FCNR(B) deposits under the Reserve Bank of India’s special swap window and expects this figure to rise to $1 billion by the end of the month, Chand said, adding that the bank is targeting total FCNR flows of around $4-5 billion by the close of the window on 30 September 2026.