Bank of Baroda Q1 preview: Loss likely on rise in bad loan provisions

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Bank of Baroda is expected to report a net loss of Rs 102.6 crore in the June quarter of FY19 due to a likely spike in bad loans and provisions, as per a Reuters’ poll.

As per a Motilal Oswal report, however, the bank could just post a 32 percent year-on-year (YoY) drop in net profit for Q1FY19 to Rs 138 crore.

The public sector bank had reported a net profit of Rs 203 crore in the same quarter last year.

The Reuters’ poll pegs jump in loan loss provisions of 29 percent to Rs 3,061 crore from Rs 2,368 crore in June quarter a year ago.

Loan growth and NPAs

“We expect loan growth to pick up to about 16 percent year-on-year. Balance sheet recalibration will continue, led by a focus on granular retail loans. We expect drill-down in the international book to continue. We expect deposits to grow about 5 percent year-on-year and 2 percent over the previous quarter,” the Motilal Oswal report said.

Gross non-performing assets (NPAs) as a percentage of total loans is estimated to worsen at 12.2 percent as at June end 2018 from 11.4 percent last year. Sequentially, it may dip from 12.3 percent as on March 2018.

Net NPAs are projected to rise to 5.9 percent, both YoY and sequentially from 5.2 percent and 5.5 percent, respectively.

Interest income and margins

The poll estimates net interest income (NII), the difference between interest earned and expended, to increase to Rs 4,201 crore in Q1FY19 as against Rs 3,405 crore in Q1FY18.

During the period, non-interest income or other income is projected to rise by 10 percent to Rs 1,399 crore from Rs 1,551 crore in the same quarter last year.

Motilal Oswal expects fee income to fall with non-interest income expected to decline 7 percent YoY.

“We expect margins to improve to about 2.6 percent, as interest income reversals continue to moderate,” the report said.

Key issues to watch for:

> Stress addition, mainly from the international book

> Guidance on loan growth, margins, and operating expenses