Mumbai: State-owned Bank of Baroda on Wednesday reported a 60.4% jump in its second quarter net profit, aided by a hefty rise in income from its core activity of lending as well as treasury and fee-based services.
The country’s third largest public sector bank in terms of assets reported a net profit of Rs634 crore in the quarter to end-September against Rs395 crore in the corresponding quarter a year ago.
The bank’s net interest income, or the interest earned after accounting for interest payments, rose 22.5% to Rs1,388.60 crore. It’s income from non-core activities increased 25% to Rs595.33 crore, with treasury income rising 39% to Rs205 crore.
Apart from higher income, lower provisions, too, helped the bank post a handsome growth in profit. Its provisions and contingencies fell 36.1% to Rs116.33 crore but Bank of Baroda still managed to maintain a loan loss coverage ratio of 79.29% of its total non-performing assets (NPAs). Reserve Bank of India (RBI) suggested in its second quarter monetary review that Indian banks should maintain a minimum of 70% of their NPAs.
Bank of Baroda’s asset quality also improved during the quarter with gross non-performing assets (NPA), as a percentage of total lending, dropping to 1.30% in September from 1.62% last year. Net NPA dropped to 0.27% from 0.43% a year ago.
Its net interest margin (NIM), or the spread between yields on advances and cost of funds, came down marginally to 2.89% from 2.92% a year ago, but is still higher than the industry average of 2.5%.
The bank has reduced its deposit rates substantially to nullify the hit on lending rate cuts. Bank of Baroda now offers 6.5% for one-year deposits and its main lending rate is 12%.
“I would be happy to sustain NIMs at the current level,” said the bank’s chairman and managing director M.D. Mallya.
NIMs of all banks have come under pressure as banks pared their lending rates following sharp cuts in policy rates by the central bank. Starting first quarter, banks started paring their deposit rates also. A cut in deposit rates take time to impact banks’ earnings as they continue to pay the old rates till the deposits mature.
The bank expects its credit growth to be 21% in fiscal 2010 with financial closures taking place for infrastructure projects that were on the pipeline, Mallya said. This is much higher than RBI’s estimate of 18% credit growth in the current fiscal year. The Indian banking industry’s loan growth in the past year till the first week of October has been 10.75%, the lowest in 12 years.
The bank’s stock rose 2.14% to close at Rs486.75 on the Bombay Stock Exchange, even as the exchange’s bellwether equity index Sensex saw a marginal drop.