Why Bank of Baroda fell despite 21% rise in Q3 profits

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Why Bank of Baroda fell despite 21% rise in Q3 profits

State-owned Bank of Baroda’s (BoB) third quarter (October-December) net profit rose to a forecasting beating 21% year-on-year to Rs 1,290 crore on the back of strong growth in loans and other income.

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Moneycontrol Bureau

State-owned Bank of Baroda 's (BoB) third quarter (October-December) net profit rose to a forecasting beating 21% year-on-year to Rs 1,290 crore on the back of strong growth in other income and loan book.

"This quarter has been a quarter of strong qualitative growth," said M D Mallya, CMD, Bank of Baroda addressing the media.

"The third quarter net profit is the highest ever in the history of our bank in terms of absolute numbers. Strong growth in core business and fee income contributed to this profit jump. We will continue with this consistency (of growth) in fourth quarter as well. The focus will remain in core business."

The net interest income or the difference between interests earned and paid out increased nearly 16% to Rs 2,656 crore. Other income spurted 70% y-o-y to Rs 1,149 crore. Global loan book expanded nearly 26% y-o-y to Rs 2.61 lakh crore while deposits rose more than 26% to Rs 3.49 lakh crore.

"Other income comprises fee income, treasury and forex trading gains and income from sale of investments.  Treasury income zoomed nearly two fold to Rs 646 crore while forex trading generated around Rs 100 crore profit," said R K Bakshi, Executive Director, BoB.

In the last one month BoB shares rose nearly 21% as against 17% rise in the 12-share Bank Nifty index. Despite more-than-expected net level, shares fell nearly 2% to Rs 786 on the NSE.

"The net profit rise is basically driven by other income that is inclusive of one-off items like treasury gains. There has been some concern on asset quality as both slippages and restructured assets increased in Q3. This led to some depression in the stock price," Dinesh Shukla, senior banking analyst at brokerage firm Sharekhan told Moneycontrol.com.

The gross non-performing asset (NPA) ratio increased at 1.48% compared with 1.41% in the July-September quarter. The net NPA ratio too crawled up to 0.51% from 0.47% quarter-on-quarter. During the three months period, the bank has seen slippages of around Rs 950 crore as against around Rs 550 crore in Q2.

The lender has restructured assets worth Rs 2,116 crore out of total outstanding restructure book of Rs 9,500 crore. Most of the restructured assets, according to Bakshi,  are from telecom and infrastructure sectors.
The bank made total provisions of Rs 836 crore in the third quarter of FY12, a massive jump of 175% y-o-y basis.

"We follow a prudent policy of maintain 80% provisioning coverage ratio. Due to the slippages incurred during the quarter, we had to provide for 80% of that," added Mallya.

Domestic loan book rose 18.50% year-on-year while the incremental growth between April and December has been 14%. This means, the lender has to scale up another 2% growth in advances to achieve the Reserve Bank of India's projected credit growth of 16% in FY12.  Domestic net interest margin (NIM) stood at 3.51% in Q3 as against 3.67% in Q2.

saikat.das@network18online.com