Mumbai: State-owned Bank of Baroda on Monday reported a 21.57% drop in third-quarter profit on higher provisioning to cover bad debts, and lower income from treasury operations.
Profit for the quarter ended December dropped to Rs.1,011.62 crore from Rs.1,289.85 crore in the year ago. Provisions rose 23% to Rs.1,029.31 crore from Rs.836.74 crore as the bank kept its coverage ratio—the ratio of provisions held to gross non-performing assets (NPAs)—at above 70%.
NPAs surged to Rs.7,321.45 crore from Rs.3,895.08 crore in the year-ago period and Rs.5,879.01 crore in the September quarter.
The gross NPA ratio, or the percentage of bad debts to the total advances, rose to 2.41% in the December quarter from 1.98% in the September quarter and 1.48% in the December quarter of fiscal 2012.
After provisioning, the net NPA ratio was 1.12% against 0.51% in the year-ago quarter.
A slowing economy has put India’s banks under stress with bad debt shooting up.
The gross NPAs of 40 listed Indian banks rose to Rs.1.66 trillion in September, up 46.8% from the year ago.
This has meant that banks have increasingly been pushed to restructure loans given to borrowers struggling to make their repayments. With the central bank keen on raising the amount of money that needs to be set aside on this account, bank earnings may come under increasing stress.
Bank of Baroda also had to set aside Rs.80 crore more following a central bank mandate in November that raised the provisioning on restructured assets to 2.75% from 2%. The central bank favours raising this further to 5% in phases. The bank’s slippage, or good loans turning bad, in the quarter amounted to Rs.1,604 crore, while it restructured Rs.1,587 crore of debt. The management of the bank sees constraints on the asset-quality front in the coming quarters.
“NPAs are obviously elevated, but they are reflecting what is happening in the economy. Next two-three quarters will continue to be challenging,” S.S. Mundra, the bank’s chairman and managing director, said at a press conference to discuss the earnings.
The bank will not seek to aggressively expand the business in the next few quarters, he said.
“We will go more in tandem with the industry rather than growing at an unusual pace,” Mundra said.
The bank will focus on asset quality, widen the base of its portfolio, and continue to mobilize low-cost current and savings accounts while focusing on alternative channels of banking, he said.
The net interest margin (NIM), or the difference between yields on advances and the cost of funds, fell to 3.08% for the domestic market in the quarter, against 3.51% in the year-ago period. Global NIM, or that including foreign offices, fell to 2.65% from 2.99%.
The bank will achieve NIM of around 3% by the year end, said Mundra, even as it has reduced lending rates recently. This is because a substantial number of deposits are coming for repricing and will be contracted at cheaper rates.
Treasury profit fell 64.8% to Rs.135.59 crore, adding to the impact on earnings.
Last year, the bank had made an unusual gain that had boosted this to Rs.385.50 crore.
One analyst with a domestic brokerage described the results as “surprisingly disappointing” as the bank had a track record of providing good results and lower asset-quality stress every quarter.
“Every time a new chairman comes into a bank, it happens... but clearly the market did not expect this,” said the analyst, who did not want to be named.
However, allaying such concerns, Mundra, who joined the back less than a fortnight ago, said this was natural and reflects the present economic scenario and that the bank’s asset quality is still one of the best in the industry.
“Apart from a professional angle, I have nothing else in my mind. What we are trying to do is dealing with reality in a practical and a robust manner,” said Mundra, who returned to the bank a fortnight ago. He began working at Bank of Baroda in the late seventies and stayed there until he was named executive director of Union Bank of India two years ago.
Bank of Baroda fell 7.5% to Rs.802.1 on Monday on BSE, while the benchmark Sensex lost 0.15% to 19,751.19 points.
The banking index, Bankex, lost 0.52% to 14,389.34 points.
Meanwhile, private sector Jammu and Kashmir Bank reported a 36% rise in third-quarter profit aided by a robust performance in corporate and retail banking as well as in treasury operations.
Net profit rose to Rs.289 crore. NIM rose to 4.07% from 3.60% in the year ago. The stock rose 1.27% to Rs.1,394.45 on BSE.