Bank of Baroda: Why shares fell over 3%

Bank of Baroda shares fell more than 3.3 per cent and underperformed the BSE’s Bankex that fell 2.7 per cent. While all bank stocks fell, Bank of Baroda’s quarterly results announcement last Friday raised fresh concerns about the profit outlook.

Here are some pointers:

• The street is not impressed with the quality of loan assets of Bank of Baroda. The bank announced results for the quarter to March 2012. Kotak Securities has downgraded the stock to ‘reduce’ from ‘attractive’ while HSBC said the outlook continues to weaken on deteriorating margins and asset quality issues in coming quarters. Barclay’s has maintained an ‘underweight’ rating due to a weak core operating performance and asset quality concerns.

• Slippages increased to 2 per cent from about 1.6 per cent in December 2012 quarter raising concerns on medium-term trends after many quarters of strong performance. This means the company classified more assets as non-performing ones. This has a direct impact on the interest income. Analysts argue that the bank had a record of low slippages across banks. The sharp rise in slippages concerned the street.

• It must be noted though that all banks are expected to report slippages or a rise in loan restructuring. CRISIL, a credit rating agency, expects loan restructuring to touch Rs 2,00,000 crore by March 2013. Crisil estimates that the total restructured loans will account for 3.5 per cent of the total advances as at March 2013.

• During the quarter, Bank of Baroda reported a negative tax expense of Rs 320 crore, resulting in higher-than-expected profits. The bank’s management told analysts that the tax refund of Rs 400 crore, aggressive write off and, higher contribution from the international business (effectively lower tax) were key reasons for higher-than-expected annual profits. Analysts would like the bank to focus on profitability through the core business of lending.

• M D Mallya, chairman of Bank of Baroda (BoB) is hopeful of reporting a net interest margin (NIM) in the range of 3.41-3.61 per cent in the current financial year. Net interest margin is the difference between the cost of borrowing and cost of lendign for the bank. "In FY13, our margins will be plus or minus 10 basis points (0.10 per cent) of the margin level reported in the last financial year. Despite current economic environment, we are hopeful of maintaining our margin level in the current fiscal," he said on the sidelines of announcing the fourth quarter result of the bank.