Bank of Baroda, after the merger with Vijaya and Dena Bank, continues to witness pressure on profitability and asset quality. In the latest September quarter, weak growth in core net interest income – on the back of modest loan growth, higher slippages and elevated provisioning – has led to a modest profit of ₹737 crore. A still large stressed assets pool, higher addition to bad loans, and significant write-offs suggest that there could be more pain for the merged entity in the coming quarters.

Bank of Baroda has a large bad loan book of nearly ₹70,000 crore, as of September 2019, which is likely to keep provisioning high in the coming quarters. As such, slippages have moved up during the quarter, which is also a concern. From ₹5,583 crore in the June quarter, fresh slippages have moved to ₹6,001 crore in the latest September quarter. Write-offs, at ₹3,355 crore, is also significant, which implies that unless recoveries on large accounts happen, earnings could be under pressure in the coming quarters. Bank of Baroda has a total exposure of about ₹49,000 crore to accounts under IBC, against which it has made a provisioning of about 87 per cent.

The bank’s stressed assets book needs a close watch. As of September, the watchlist of the merged entity is a large ₹14,500 crore (though down from the previous June quarter). Ninety per cent of the slippages during the quarter came from the stressed book. In the coming quarters, slippages from the watchlist accounts can lead to higher provisioning. Power, road and NBFC sector are the top exposures for the bank within the watchlist.

On the core performance front, domestic credit growth stood at a modest 6-odd per cent in the September quarter. Further consolidation of loan book and weak credit off-take in the corporate segment may continue to weigh on credit growth. Bank of Baroda’s Tier 1 capital inched upto 10.9 per cent in the September quarter (from 9.5 per cent in the June quarter).

The government has infused ₹7,000 crore in the bank during the quarter.

Published on November 08, 2019