Bank of Baroda slips 3% on surprise June quarter loss of Rs 864 crore

Shares of state-owned Bank of Baroda declined 3 per cent to Rs 47 apiece in the early morning deals on the BSE on Tuesday after the lender reported a surprise net loss of Rs 864 crore for April-June quarter of FY21 due to rise in provisions for standard assets, including those under moratorium and government-guaranteed loans. It had reported a net profit of Rs 710 crore in the corresponding quarter a year ago.

Besides, the lender posted pre-tax loss of Rs 1,308 crore compared to profit before tax (PBT) of Rs 991 crore in Q1FY20. 

Analysts at Motilal Oswal Financial had pegged the bank's pre-tax profit at Rs 717 crore. With a tax expense of Rs 180.7 crore, MOFSL had estimated the net profit at Rs 536.3 crore. Meanwhile, those at Elara Capital saw the profit growing 47 per cent sequentially to Rs 744.9 crore in the quarter under review.

The profit was hit by provisions and contingencies, which rose by 71.32 per cent to Rs 5,628 crore in Q1FY21 from Rs 3,285 crore in Q1FY20. "BoB made a provision of Rs 1,900 crore for standard assets. Of this, half was for a loan which carries government guarantees and balance for loans under moratorium," said its managing director (MD) and chief executive officer (CEO) Sanjiv Chadha said.

On the asset quality front, the gross non-performing assets (GNPAs) declined to 9.39 per cent in Q1FY21 from 10.28 per cent in Q1FY20. GNPAs were at 9.4 per cent at end of March 2020. Meanwhile, net NPAs declined to 2.83 per cent in June 2020 from 3.95 per cent in June 2019. Net NPAs were at 3.13 per cent in Mach 2020. 

Provision coverage ratio (PCR) improved to 83.3 per cent in June 2020 from 77.34 per cent a year ago.

Capital adequacy ratio (CAR) of the bank stood at 12.84 per cent as on June 30, 2020, with tier I at 9.08 per cent. The bank has approval in place to raise up to Rs 9,000 crore via equity shares. 

"Weak core pre-provision operating profit/assets of less than 125bp and weak capital position with CET-1 of 9.1 per cent in 1Q21 puts BOB in a difficult position to see normalisation in ROEs anytime soon, especially with moratorium still higher than frontline banks at 21 per cent of loans (excluding moratorium on working capital loans)," noted analysts at Nomura. They remain 'Neutral' on the stock with a target price of Rs 50.

While moratorium for the lender reduced to 21 per cent (Jul-end) of loans (from around 55 per cent moratorium book as of May-end), analysts fear it is still higher compared to frontline banks' 10-15 per cent moratorium. Besides, this does not include working capital moratorium. "Of the 21 per cent book under moratorium, 6 per cent was on account of opt-out facility to customer with a ticket size of less than Rs 10 lakh. Covid-19 related provisions remain low at just Rs 1,800 crore (~125bp of morat book, 25bp of overall book). Management highlighted that it expects more restructuring in the corporate book while the ECLGS scheme should reduce stress levels for MSME," said analysts at the brokerage.

Slippages, too, rose to Rs 3,500 crore from Rs 32,00 crore QoQ. While domestic slippages declined, there was a sharp increase in overseas slippages from Rs 790 crore to Rs 2,100 crore.  

"Earnings were weak with pressure on domestic NIMs, pressure on fees, high overseas slippages, high credit costs driven by standard provisions of Rs 1.000 crore on Air India and a sharp increase in the NBFC watch list due to addition of two companies of the SREI Group. Total Provisions remained high at 3.3 per cent due to provisions on Air India, though they were lower than 4.1 per cent QoQ... A high proportion of corporate loans under moratorium and soft NIMs are key negatives. Stress remains high with BBB and below loans at 33 per cent. The bank plans to raise Rs 9000 crore of CET-1, which at current valuations, will be highly dilutive," said a post-result report by Elara Capital. The brokerage has 'Reduce' rating on the stock with a target price of Rs 50. 

At 10:00 am, the stock was trading 1.65 per cent lower at Rs 47.75 per share, as against 0.66 per cent gain in the S&P BSE Sensex. A combined 14.32 million shares had changed hands on the counter on the NSE and BSE till the time of writing of this report.