Bank of Baroda’s (BoB) June quarter earnings follow the script for the most part. As expected, net interest margin (NIM) was squeezed because of rising rates, loan growth was a bit subdued over the quarter and bad loans rose, which meant higher provisioning. Still, the bank managed to boost its profit by one-fifth from a year ago.
That suggests things weren’t too bad operationally. Net interest income rose one-fourth from a year ago and fee income, too, gained a bit. Despite having to set aside some money for pension liabilities—which all its public sector peers have to do following the Reserve Bank of India (RBI) guidelines—BoB’s operating income gained nearly one-fifth over the year-ago period. That helped compensate for the 55% rise in provisions and helped it escape the fate of peers such as Bank of India and Oriental Bank of Commerce.
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As a percentage of the loan book, gross non-performing assets amounted to 1.46% in the June quarter, 5 basis points higher than the year earlier. The bank has not been all that active in expanding its business during the June quarter. Advances grew 1.6% from the end of March, less than half the system’s growth rate. Deposits grew just a tad faster at 2.4%. Perhaps, this is not all bad since bank chiefs have been concerned about asset quality deteriorating as rates rise.
That fear has only been renewed after RBI raised policy rates again on Tuesday. Banks are going to come under more pressure because of falling loan demand on account of higher rates or shrinking NIMs. Still, BoB’s asset quality is among the best in its peer grouping of large-sized banks.
With the stock trading at an attractive 1.45 times to estimated book value for this fiscal, there is no reason why it should not continue to outperform the Bankex on BSE.
Graphic by Sandeep Bhatnagar/Mint
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