MUMBAIBank of India, the nation’s third biggest state-run lender, sank to a quarterly net loss as bad loans spiked, forecasting difficult months ahead while it tightens efforts to claw back debt.

The bank, which had been expected to report a modest profit, instead on Monday reported a 11.26 billion rupee ($169.6 million) net loss for the second quarter to the end of September. Much of the damage was caused by what it termed “spillover” provisions, which should have been accounted for in the last fiscal year.

“We’ll definitely have a challenging time over the next 2 to 3 quarters,” said Melwyn Rego, who took over as the bank’s chief executive in August. Rego is one of a group of new bosses appointed to India’s largest state-run banks.

Investors have been looking for signs that India’s state banks are getting to grips with their worst bad debt burden in a decade.

But while there have been signs of improvement in some banks’ second quarter earnings — including at the country’s largest lender State Bank of India — others point to a more uneven recovery.

“With the improving macroeconomic scenario and the fact that we have taken already a large portion of the hit, I do not see any major risks coming up,” Rego said.

But he said corporate loans in the portfolio were often bulky, meaning one sour loan could offset other improvements.

Like its rivals, Bank of India hopes to boost retail loans, tapping India’s bubbling consumer sector. Rego said he wanted retail loans to account for 55 percent of the portfolio in two years’ time, compared to 45 percent now.

He said the bank would also boost home loans “in a big way”, growing in a segment which is responsible for only a sliver of current bad debt.

“There are certain areas we need to address, asset quality being one of them,” Rego said.

“Part of the strategy is to put all our efforts into recovery and also to stop further slippage.”

Bank of India’s gross bad loans as a percentage of total loans climbed to 7.55 percent in the second quarter, compared with 6.8 percent in the previous quarter, and 3.54 percent in the same three months a year ago.

Bad loans climbed to 298.9 billion rupees, against 268.9 billion at the end of June. ($1 = 66.3800 Indian rupees)

(Reporting by Devidutta Tripathy; Writing by Clara Ferreira Marques; Editing by Sunil Nair and Keith Weir)

Source: R-Business