The recent resolution of long-standing litigation concerning the troubled NMC Group, involving a significant $600 million (approximately ₹5,700 crore) payout by Bank of Baroda, was primarily driven by strategic commercial considerations and a proactive assessment of an enduring legal entanglement, according to Debadatta Chand, the bank’s Managing Director and Chief Executive Officer. Speaking during the lender’s Q1 earnings call, Chand underscored that the decision to settle, reached without any admission of liability or wrongdoing, was rooted in a "strong basis" to de-risk the balance sheet and eliminate any legacy overhangs. This move signals a calculated shift in the bank’s approach to complex international legal challenges, prioritizing financial stability and future operational clarity over prolonged courtroom battles.
The settlement, finalized through an out-of-court agreement on July 1, 2026, addresses the entirety of the bank’s potential liability in the high-profile case. While specific details remain confidential due to the bilateral nature of the agreement and the ongoing legal proceedings against other defendants, the payment resolves a critical chapter stemming from the dramatic collapse of UAE-based healthcare conglomerate NMC Health. The administrators overseeing the bankruptcy of NMC Group had initiated legal action against Bank of Baroda, alongside NMC’s former promoter B.R. Shetty and former executive Prashant Manghat, in courts within the Abu Dhabi Global Market and the United Kingdom. These legal actions alleged a vast fraud perpetrated by certain shareholders, senior management, and employees between 2012 and 2020, which ultimately led to NMC Group’s insolvency.
A central accusation against Bank of Baroda’s Abu Dhabi branch involved its alleged role in facilitating financial transactions and its purported failure to implement adequate anti-money laundering (AML), Know Your Customer (KYC), and other due diligence checks. The administrators contended that these lapses allowed the alleged fraudulent activities to persist, enabling NMC Health and its associated entities to obscure their true financial position and accumulate substantial undeclared debt. The NMC saga, which unfolded in late 2019 and early 2020, exposed billions of dollars in hidden debt, triggering a massive crisis of confidence in corporate governance within the UAE and casting a shadow over the international banking relationships with companies operating in the region. The group, once a FTSE 100 constituent, entered administration in April 2020, leaving a trail of creditors and a complex web of legal claims across multiple jurisdictions.
The decision to settle represents a notable pivot from the bank’s earlier stance, as articulated in its FY26 annual report. At that time, Bank of Baroda maintained that the claims brought by NMC Group’s administrators were not likely to crystallize, citing a "robust defense in facts and law." This earlier position suggested confidence in its legal standing. However, Chand explained that the evolving stage and criticality of the trial proceedings, coupled with intensified negotiation processes, necessitated a re-evaluation. He emphasized that the final settlement amount was "very, very low" compared to the oral claims and the total quantum of claims levied against all parties involved, justifying the prudence of the settlement given the trial’s advanced stage. Despite the comprehensive settlement, the bank affirmed its commitment to pursuing ongoing recovery efforts against the principal individual debtors implicated in the fraud.
The immediate financial impact of this settlement was pronounced, directly affecting Bank of Baroda’s profitability in the first quarter of the current fiscal year. As the bank had not made specific provisions for this litigation or settlement, the entire ₹5,700 crore payout had to be absorbed directly from its balance sheet. This one-time expenditure, equivalent to nearly 28% of the lender’s FY26 net profit of ₹20,021 crore, significantly depressed its Q1 earnings. The bank reported a net profit of ₹1,207 crore for the quarter, a stark contrast to the ₹5,528 crore it would have achieved without the settlement’s impact. This translates to a substantial year-on-year decline of 71.8% in profit after tax and a sequential drop of 77.2%, underscoring the magnitude of the hit.
Beyond the settlement, the bank’s operating profit also faced pressure, recording a 1.3% year-on-year decline to ₹8,127 crore. This reduction was primarily attributable to a 25.8% slump in other income, which fell to ₹3,470 crore. This offset the otherwise healthy 9.5% rise in Net Interest Income (NII), which reached ₹12,524 crore, indicating strong core lending operations but vulnerability to non-core income fluctuations and extraordinary expenses. The settlement’s absorption underscores the challenges banks face in managing contingent liabilities, especially those arising from cross-border financial misconduct.
Addressing capital management, Chand clarified that the bank opted against utilizing its floating provisions, amounting to approximately ₹2,500 crore, to cushion the impact of the settlement. This strategic decision was made to preserve these provisions for the impending transition to the Expected Credit Loss (ECL) accounting framework, slated to become effective from April 1, 2027. The bank anticipates a total capital impact of around ₹12,500 crore from this transition, which it expects to absorb over a period of four to five years. This forward-looking approach highlights the bank’s commitment to strengthening its balance sheet against future regulatory changes and potential credit events.
In response to the learnings from the NMC episode, Bank of Baroda has undertaken a comprehensive overhaul of its internal control mechanisms. Since the initiation of the case, the bank has significantly revamped its underwriting model for international business, instituting more stringent risk assessment criteria and enhanced due diligence processes. Furthermore, it has fortified its governance structure, streamlined operational processes, and bolstered its risk management framework and compliance mechanisms. These proactive measures are designed to mitigate the likelihood of similar incidents recurring and reinforce the bank’s resilience in the face of evolving global regulatory landscapes and complex cross-border transactions. Such systemic improvements are increasingly vital for international banks operating in an environment of heightened scrutiny over financial crime and corporate governance.
Despite the quarterly profit setback, Bank of Baroda demonstrated robust growth in its core lending activities. Global advances expanded by 17.4% year-on-year to ₹14.2 trillion as of June 30, driven by a strong 16.1% growth in retail domestic loans, reaching ₹11.5 trillion, and a significant 23.3% increase in international loans, which stood at ₹2.7 trillion. This robust credit expansion reflects the underlying demand in the Indian economy and the bank’s strategic focus on both domestic retail and select international markets.
Total deposits also showed healthy growth, rising by 13.8% to ₹16.3 trillion by the end of June. This growth was led by a 14.7% increase in domestic deposits to ₹13.8 trillion, complemented by an 8.9% rise in international deposits to ₹2.5 trillion. The bank is also actively leveraging the Reserve Bank of India’s (RBI) special swap window for Foreign Currency Non-Resident (FCNR(B)) deposits, having already garnered approximately $700 million. It anticipates this figure to reach $1 billion by the end of the current month and aims for total FCNR flows of $4-5 billion by the close of the window on September 30, 2026. This initiative by the RBI aims to attract foreign currency inflows and manage the country’s external account position, providing a valuable funding avenue for banks.
Despite the strong underlying growth metrics, the bank remains cautiously optimistic, opting not to revise its credit growth guidance of 12-14% for FY27. This conservative stance is influenced by an anticipation of geopolitical headwinds that could impact both the global and Indian economies. This cautious outlook is shared by many financial institutions navigating a complex global environment marked by inflationary pressures, interest rate uncertainties, and regional conflicts. The NMC settlement, while a substantial one-time event, positions Bank of Baroda to move forward with a cleaner slate, allowing it to focus on its core growth strategies and adapt to the evolving economic landscape with a fortified risk management framework. This strategic de-risking, though costly in the short term, underscores a long-term vision for sustainable growth and balance sheet integrity in an increasingly interconnected and scrutinised global financial system.
