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Bank of Baroda saw its net profit grow 3.6 per cent in the December 2013 quarter compared with the same period last year. This was aided by 7.6 per cent growth in net interest income.
After muted growth over the last four quarters the higher than expected growth in net interest income bodes well for the bank. Another positive was that fresh slippages and restructuring of loans was lower for the second quarter in a row.
BOB, primarily a corporate lender, has been depending more on the retail segment to drive growth, given the slowdown in the corporate segment.
The bank has the highest proportion of retail loans (17 per cent) among public sector banks (excluding SBI), and the growth in this segment in the December quarter has been strong at 21 per cent.
A few quarters back, BOB’s loan growth had moderated to 10-11 per cent even as its deposit base grew at a much faster pace (about 15-16 per cent). This weighed on the bank’s margin. But an increased focus on the retail segment has helped loan growth perk up to 18 per cent now.
This was reflected in the bank’s domestic net interest margin, which after three quarters of decline, started improving from the September quarter.
The momentum improved in the December quarter with margins rising 10 basis points over the September quarter to 2.95 per cent.
Also, on the asset quality front, the bank managed to rein in slippages which had spiked in the early part of the fiscal.
In the December quarter, fresh slippages were down to ₹1,553 crore from ₹1,863 crore in the September quarter.
Besides, additions to restructured loans have been moderating since the September quarter.
From about ₹2,000 crore restructured in the June quarter, loans recast in the December quarter were much lower at ₹1,213 crore.
That said, BOB’s gross non-performing assets as a proportion of loans went up 17 basis points on a sequential basis to 3.32 per cent — a reflection that asset quality worries still remain.
While increasing retail focus and stable margins should help the bank’s operational performance, consistent improvement in asset quality will be key for the stock to regain favour on the bourses.
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