Bank of Baroda Q1 profit falls 59.74% to Rs423 crore

Bank of Baroda’s net interest income fell 2.56% to Rs3,371.09 crore in the June quarter from Rs3,459.62 crore last year

Other income increased 49.33% to Rs1,444.39 crore from Rs967.23 crore in the same period last year. Net interest margin expanded sequentially to 2.8% from 2.7%. Photo: Ramesh Pathania/Mint
Other income increased 49.33% to Rs1,444.39 crore from Rs967.23 crore in the same period last year. Net interest margin expanded sequentially to 2.8% from 2.7%. Photo: Ramesh Pathania/Mint

State-owned Bank of Baroda said on Thursday net profit for the June quarter fell 59.74% from a year ago due to higher provisions and lower net interest income. Net profit for the quarter was Rs.423.62 crore, compared with Rs.1,052.15 crore a year ago.

According to a poll of 26 Bloomberg analysts, the bank was expected to post a net profit of Rs.398.40 crore.

Net interest income (NII), or the core income a bank earns via loans, fell 2.56% to Rs.3,371.09 crore in the June quarter from Rs.3,459.62 crore last year.

Other income rose 49.33% to Rs.1,444.39 crore from Rs.967.23 crore in year-ago period. Net interest margin (NIM) expanded sequentially to 2.8% from 2.7%.

The bank’s total deposits at the end of the first quarter stood at Rs.5.62 trillion, as compared with Rs.5.93 trillion a year ago. The bank cut the level of high-cost deposits on its book, causing a fall in total deposits and the cost of domestic deposits. The cost of domestic deposits dropped to 6.21% as on 30 June, from 6.61% as on 31 March.

The bank was also able to increase the ratio of current account savings account (CASA) deposits to 33% of total deposits at the end of the first quarter, from 29.09% a year ago and 29.43% at the end of the fourth quarter of the last financial year.

Bank of Baroda’s total advances as on 30 June were at Rs.3.62 trillion, down 11% from Rs.4.08 trillion a year ago.

“The bank has undertaken a conscious rundown of certain unprofitable assets, resulting in improvement in yield on advances and net interest margin,” a Bank of Baroda statement said.

“Overall we are quite positive on credit growth, but we do want to let go of unprofitable businesses. We are seeing growth in the fertilizer sector, oil and natural gas, renewable energy and pharmaceuticals. We want to grow in sectors such as automobiles, auto ancillaries, consumer products, other services industries,” said P.S. Jayakumar, managing director and chief executive officer at Bank of Baroda, adding that the bank expects 8-10% year-on-year credit growth this fiscal.

NIM rose to 2.8% as on 30 June from 2.7% a quarter ago. For the lender’s international operations, NIM improved to 0.98% from 0.92% at the end of the March quarter.

In December, the Reserve Bank of India (RBI) conducted an asset quality review across the banking sector, following which the banks were asked to recognize visibly-stressed assets as non-performing assets (NPAs). RBI also asked banks to make adequate provisions for stressed assets. This has hit the profitability of some banks.

Gross NPAs at Bank of Baroda rose 6.1% to Rs.42,991.68 crore at the end of the June quarter from Rs.40,521.04 crore in the March quarter. On a year-on-year basis, gross NPAs rose 148.88% from Rs.17,273.95 crore. As a percentage of total loans, gross NPAs hit 11.15% at the end of the June quarter as compared to 9.99% in the previous quarter and 4.13% in the year-ago quarter.

“Our previous guidance was that the gross NPA number would be limited to Rs.45,000-50,000 crore by the end of this year, with a strong bias to the lower end of the band. As things stand, we should be able to meet that guidance. Further deterioration can never be ruled out,” Jayakumar said.

Provisions and contingencies fell 70.78% to Rs.2,004.07 crore in the quarter from Rs.6,857.66 crore a quarter ago. On a year-on-year basis, provisions jumped 234.16% from Rs.599.74 crore.

Net NPAs were at 5.73% in the June quarter compared to 5.06% in the previous quarter and 2.07% in the year-ago period.

The bank reported fresh slippages worth Rs.5,527 crore in the April-June quarter, as compared with Rs.5,030 crore in the March quarter. The bank was able to make recoveries worth Rs.1,081 crore and upgrade loans worth Rs.1,401 crore during the first quarter. Bank of Baroda also wrote off loans worth Rs.1,142 crore in the three-month period.

The bank’s higher fresh slippages and increased provisioning should taper off by the third quarter this financial year and it should be able to show a much better performance in the January-March 2017 quarter, Jayakumar added.

“We believe slippages will continue to remain high and consequently higher provisions will keep bottom-line under pressure. We have a neutral rating on the stock.” said Siddharth Purohit, senior banking analyst at Angel Broking.

Bank of Baroda said that it has launched Project Navoday, aimed at improving the bank’s business strategy, products and services, processes, digitization and capabilities of its work force.

“While this transformation exercise will be completed over a period of 18 months, the early benefits should start flowing from Q4 FY17,” the bank said in its statement.

Shares of Bank of Baroda fell 8.95% to close at Rs.145.95 apiece, while the Sensex gained 0.31% to close at Rs.27,859.60 on Thursday.

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