Here's why Bank of Baroda shares hit 52-week low post Q1

Moneycontrol Bureau

State-owned Bank of Baroda (BoB) shares on Thursday hit 52-week low at Rs 510 to close at Rs 515, down about 8 percent after the lender reported muted growth of just 2 percent year-on-year in its first quarter (April-June) net profit, supplemented by sharp deterioration in credit quality.

Must read: Bank of Baroda Q1 net up 2.5% at Rs 1167cr on other income

"The second quarter is expected to be better," told S S Mundra, chairman and managing director at Bank of Baroda replying to a moneycontrol.com query.

"We will continue to focus more on retail. We are at a comfortable position in terms of liquidity. Retail loans expanded 16 percent while corporate loans inched up 3.09 percent year-on-year. On corporate loans, we have sensed some optimism among select segments of economy like real estate or textile, iron ore. Some pick-up (loan disbursements) is there," he said.

The bank expanded its total loans by more than 12 percent y-o-y to about Rs 3.21 lakh crore. Retail loans grew by 16 percent to Rs 38,200 crore during the quarter.

Meanwhile, the credit expansion came at the cost of asset quality. In absolute terms, gross non performing assets (NPAs) surged 83 percent y-o-y to Rs 9,763 crore, while net NPAs ballooned nearly 200 percent to Rs 5,441 crore. The asset quality deterioration was in line with some of the large state owned banks.

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"It was the credit quality that created panic among investors, who shunned BoB shares. However, the bank still stands at a higher rank among other public sector peers, besides SBI. The spike in NPAs was actually on a lower base," said Vaibhav Agarwal, vice president research, Angel Broking.

According to Mundra, NPAs did not arise from any particular sector. It came from a variety of sectors.

"However, SMEs contributed to this to an extent while farm sector too put some stress. Select large corporates defaulted due to stress on the economy. Incrementally, we made loan provisions of Rs 1,200 crore during the quarter while we restructured Rs 2,000 crore loans. We expect to restructure Rs 2,500-3,000 crore loans during July-September quarter," he said.

A majority of the future restructuring will be on account of delayed approvals and slow moving commercial procedures.

Total deposits expanded 22 percent y-o-y to Rs 4.67 lakh crore. The share of domestic current and savings account (CASA), a cheap source of funds, stood at 31.2 percent.

"We have reduced the share of bulk deposits significantly. Currently, we have only Rs 8,000 crore preferential deposits as compared with Rs 50,000 crore in the corresponding quarter of the previous year. During the quarter, we replaced Rs 15,000 crore (borrowings) with low cost deposits," P Srinivas, executive director, Bank of Baroda.

Bank of Baroda recently toppled the Punjab National Bank (PNB) to emerge as the second largest public sector lender after the State Bank of India (SBI) in terms of asset size.

saikat.das@network18online.com