Bank Of Baroda's App Scam: Opening Of FDs, RDs, PPF Accounts Declines Through BoB World In Q2

Bank of Baroda has caught the attention of market experts due to the illegal onboarding of customers in its all-digital-transactions mobile app, BoB World. Interestingly, before RBI's ban on onboarding new customers, transactions in BoB World were already declining across major fronts, especially in fixed and recurring deposits. The September quarter of FY24 revealed exactly that!

The leading PSU lender has announced its financial results for the quarter ending September 30, 2023.

In Q2FY24, daily transactions on the BoB World app stood at 7.95 million, down from 8.1 million in Q1FY24. The percentage of the opening of fixed deposits and recurring deposits through this app declined to 35% in Q2FY24 from 43%.

Also, the percentage of billpay transactions stood at 77%, and the UPI handle generated through BoB World stood at 84% by the end of September 30, 2023. This was lower compared to 80% billpay transactions, and 87% UPI handle generation in Q1FY24. All, PPF account openings through BoB World dipped to 32% in Q2FY24 compared to 44% in Q1FY24.

However, the percentage of accessing digital passbooks stayed unchanged at 86% quarter-on-quarter, and the average engagement ratio also remained the same at 6. Notably, it was only the percentage of IMPS transactions that increased to 90% in Q2FY24 from 87% in Q1FY24.

During the quarter, the bank posted a net profit of Rs 4,253 crore, rising by 28.4% from the profit of Rs 3,313 crore in the same quarter a year ago. While net interest income (NII) which is the difference between interest earned and expended, stood at Rs 10,831 crore, registering single-digit growth of 6.5% YoY.

Asset quality continued to improve in Q2FY24. Gross NPA stood at 3.32% in Q2FY24, as against 3.51% in Q1FY24 and 5.31% in Q2FY23. Net NPA was at 0.76% in Q2FY24, as against 0.78% in Q1FY24, and 1.16% in Q2FY23.

On October 10, RBI directed the Bank of Baroda to suspend, with immediate effect, any further onboarding of their customers onto the 'Bob World' mobile application. This action is based on certain material supervisory concerns observed in the manner of onboarding their customers onto this mobile application.

However, the first sign of illegal onboarding in Bank of Baroda's BOB World App was exposed by AI Jazeera in July 2023.

As per the Al Jazeera report, the employees of Bank of Baroda to onboard customers on BoB World, would fetch out the list of bank accounts which were not linked with mobile numbers, and then the employees would link these accounts to any mobile numbers they could gather such as bank staffers, sanitation and security workers and their relatives. The goal of doing so was to generate the one-time password (OTP) which is required to join the application and sign up for these accounts.

The next step by these employees was to deregister these customers from the app and reuse the same mobile numbers to repeat the process all over again.

Following RBI's directions, the Bank of Baroda has suspended at least 60 employees in the matter, as per reports.

On November 3rd, India Ratings assigned Bank of Baroda an additional CD rating at 'IND A1+, while affirming existing ratings. The rating agency, however, said that it continues to take a consolidated view of BOB and its subsidiaries while arriving at the ratings.

Ind-Ra in its report said, the ratings continue to reflect BOB's high-systemic importance to the government of India (GoI; 63.97% stake as of June 2023), and hence, a high probability of support from the GoI, if required. The ratings also reflect BOB's large franchise with a pan-India and relatively large international presence, strong capitalisation, and superior liquidity and asset quality metrics, which are better than comparable public sector banks (PSBs).

On RBI's ban, Ind-Ra believes that the move is likely to impact the bank's ability to sustain its liability growth, primarily CASA generation through the onboarding of new salary accounts in urban and metro regions, as about 98% and 91% of SA and CA are being sourced digitally.

Moreover, Ind-Ra pointed out that 58% of fixed deposits and 42% of recurring deposits, which are being booked through Bob World, are likely to be negatively impacted. However, in terms of assets, the impact would be limited as cross-selling for retail products (personal loans and credit cards) to existing Bob World customers would be sufficient to meet growth requirements in the medium term. The continuing of transactions through internet banking, tab banking and branch banking would remain unaffected.

The agency understands that BOB has already taken remedial measures and is awaiting a review of the measures taken by the RBI to resolve the issue.