BoB World Scam: How This Fraud May Rock Bank Of Baroda's Deposits, Lending?

Bank of Baroda has become the talk of the town and for all the wrong reasons. Many eyebrows have been raised at the bank's irregularities carried out by senior to bottom-level employees. The security of thousands of bank accounts is in question, and the market is yet to hear the full scale of the infamous scandal in the lender's all-in-one-banking-services mobile application, BoB World. While everyone awaits more findings, how will this app fraud eventually impact the Bank of Baroda, especially its deposits and lending business?

Safe and Secured! These two words would be eye-catching every time you search for the BoB World app. Because the integrity of these two words in this app is in question right now!

Since RBI banned the app from onboarding new customers with effect from October 10th, things have only haywire Bank of Baroda.

The lender had to fire dozens of employees after an investigation which revealed that they were carrying irregularities in onboarding customers in the BoB World app, as per reports.

A brief of what has happened!

Bank of Baroda which is among the leading PSU banks, was directed by RBI to stop onboarding new customers on its BoB World App with effect from October 10, 2023. This action is based on certain material supervisory concerns observed in the manner of onboarding their customers onto this mobile application.

RBI also said any further onboarding of customers of the bank on the 'bob World' application will be subject to rectification of the deficiencies observed and strengthening of the related processes by the bank to the satisfaction of RBI." Also, the central bank further directed BoB to ensure that already onboarded 'Bob World' customers do not face any disruption on account of this suspension.

Following this, on October 11, the bank assured its existing customers that they would not face any disruption whatsoever and would continue to enjoy uninterrupted services on the Bank's Bob World mobile app.

However, markets got alert upon remembering the first warning against Bank of Baroda's BoB world. It was an Al Jazeera report that first exposed the illegal onboarding of the BoB World app.

As per the Al Jazeera report, Bank of Baroda's employees committed fraud by fetching out a 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.

Thousands of bank accounts at the Bank of Baroda are at risk now. Also, as per the reports, the bank has recently fired 60 employees related to the matter, however, the lender has yet to confirm the same.

How Will BoB World Scam Impact the Bank of Baroda?

Motilal Oswal in its report dated October 11th, right after the RBI's action on the app, highlighted that the move was driven by concerns regarding the processes and how BOB has acquired a large number of customers through its digital platform, the RBI said. There have been media articles recently about the process lapses at BOB to rapidly boost the number of digital customers.

According to Motilal, the bank has 53 million app downloads and 30 million activated users on the app as of March 31, 2023. It added, that the ban may impact the bank's ability to sustain healthy business growth, as about 98%/91% of SA/CA acquisitions are currently done through digital channels. Moreover, 58% of FDs and 42% of RDs are
also booked via digital channels.

Also, its lending business may be disrupted as well. Motilal's note highlighted that 61% of credit cards and 89% of personal loans are sourced digitally. Even in other retail products, 67-68% of home and auto loans are sourced digitally and the bank has been guiding to increase the
mix of the RAM segments in total loans.

Further, it explained that Retail loan growth currently stands at 25% YoY, led by strong growth across secured and unsecured products.

Motilal's note added, "We will be watchful of growth in unsecured PL as the current growth rate is 83% YoY (100% YoY growth in FY23). The RBI has already been cautioning about faster growth in these segments.

On the asset quality of Bank of Baroda, Motilal's note said, "While there may not be any near-term asset quality implications of this ban, but given the rising mix of digital sourcing and the higher cross-sell rate that the bank has been focusing on via BOB World, this ban can affect the growth trajectory in the retail product segments over the near term."

For how long will this ban on the BoB World app stay to haunt the Bank of Baroda? Motilal's note added, "The RBI has advised that further onboarding of customers via the 'bob
World's application will be subject to rectification of the deficiencies and strengthening of the underlying processes. Going by the recent digital embargo episode on another private bank, we think that the ban may stay for at least a few quarters. We currently have a BUY rating on BOB with a TP of INR240."

In the trading week that ended on October 27th, Bank of Baroda's share price dived by nearly 4% on BSE. Currently, the stock price is at Rs 196.90 apiece.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.