• FEBRUARY 8, 2002

BOB: Another dismal quarter

The performance of state run banks was impacted by lower credit demand in the December quarter. Bank of Baroda (BoB) too could not remain immune and reported flat growth in interest income during the third quarter and a mere 5% rise in net earnings.

(Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
Income from Operations 14,448 14,519 0.5% 43,235 44,253 2.4%
Other Income 1,370 2,524 84.2% 4,043 6,834 69.0%
Interest Expenses 9,432 10,045 6.5% 28,774 30,063 4.5%
Net interest income 5,015 4,474 -10.8% 14,461 14,190 -1.9%
Other Expenses 3,517 3,751 6.6% 10,132 11,671 15.2%
Operating Profit 1,498 723 -51.7% 4,329 2,519 -41.8%
Operating Profit Margin (%) 10.4% 5.0%   10.0% 5.7%  
Provisions and Contingencies 840 1,015 20.9% 2,540 3,401 33.9%
Profit before Tax 2,028 2,231 10.0% 5,832 5,952 2.0%
Tax 520 650 25.0% 1,540 1,560 1.3%
Profit after Tax/(Loss) 1,508 1,581 4.9% 4,292 4,392 2.3%
Net Profit Margin (%) 10.4% 10.9%   9.9% 9.9%  
No. of Shares (m) 294.3 294.3   294.3 294.3  
Diluted Earnings per share* 20.5 21.5   19.4 19.8  
P/E Ratio   2.1     2.3  

Interest on advances for public sector banks in general recorded decline, hit by lower interest rates and slowdown in loan demand. Competition from private and foreign banks further pressurized interest income. BoB's income from investments however, posted a growth of 7% in the third quarter, compensating for the decline in core business income and interest on balance with RBI. The bank's net interest income declined by 11% due to more than proportionate rise in interest expenses and the bank going for sub-PLR lending.

Interest income break-up
(Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
Interest on advances 7,691 7,545 -1.9% 22,373 22,334 -0.2%
Income on investments 5,658 6,078 7.4% 16,447 17,674 7.5%
Interest on balance with RBI 1,089 860 -21.0% 4,054 3,426 -15.5%
Others 10 36 260.0% 362 820 126.3%
Total 14,448 14,519 0.5% 43,235 44,253 2.4%

BoB's cost to income ratio reduced to 54% from 55% in 3QFY01. Excluding VRS write off of Rs 439 m, which is included in other expenses, the ratio actually declined to 44%. The bank is likely to draw significant benefits in terms of savings in employee cost in the coming years and thereby could improve operating margins.

Over 80% rise in other income supplemented bottomline growth during the third quarter. The proportion of other income to total income rose to 15% from 9% in 3QFY02 fueled by higher gains on sale of investments in gilts. Nevertheless, 21% increase in provisions for non-performing assets (NPAs) and rise in effective tax rate to 29% (from 26% in 3QFY01) depressed the bank's net profit growth.

At the current market price of Rs 46, BoB is trading on a P/E multiple of 2.3x and Price/Book value ratio of 0.4x, for 9m FY02 . The bank is adequately capitalized with CAR of 12.8%, which could supplement its future business expansion. However, its dismal performance in first nine months of FY02 and relatively slow IT implementation strategies are likely to keep its valuations lower. The stock could rise technically if the government clarifies the FDI and FII investment norms for the PSU banking companies.

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