Bank of Baroda: Deteriorating asset quality leads to poor show in Q3

The performance of Bank of Baroda in the December quarter was below expectations primarily driven by deteriorating asset quality. The market has reacted to the results which can be seen in the 7% drop in the share price to Rs 809.

The bad loans for the bank has risen for the fourth consecutive quarter due to the stress in the environment. The bad loans to total loans (net) increased 30 basis points quarter-on-quarter. The slippages came from the corporate sector mostly agriculture and manufacturing. Even the restructuring of loans spiked 60% sequentially reflecting the worsening asset quality. The management has guided that the asset quality deterioration is likely to continue for the next 2-3 quarters. However, the provisioning coverage ratio for the bank continues to be high at 70.88%.

The substantial jump in the bad assets led to higher provisioning. Therefore, even though the tax rate was lower this quarter, there was a 22% drop in the net profit for the bank.

The net interest income, which is the difference between interest earned and interest paid declined sequentially due to a fall of 23 basis points in its domestic NIM and lower than loan system loan growth. NIM is the yield on advances over cost of deposits.

The worsening asset quality also impedes the growth prospects for the bank for the next 2-3 quarters.