Public sector lender Bank of Baroda on Thursday reported a 59.7% (Y-o-Y) decline in its net profit to R423.6 crore for the quarter ended June.
The net profit fell because of lower net interest income (NII) – the difference between interest earned and interest expended – an over three-fold jump in provisions and a 9 basis point contraction in the net interest margin (NIM).
The asset quality of the bank further deteriorated during the quarter under review, as gross non-performing assets, as a share of its total advances, rose to 11.15% from 9.99% at the end of the March quarter. While fresh slippages of R5,527 crore were primarily responsible for this, an over R21,000-crore shrinkage in its loan book also played a part.
Sequentially, however, the results of the lender were a big improvement following two successive quarters of losses of over R3,000 crore each in Q4FY16 and Q3FY16.
While losses in these two quarters were largely because of the bank setting aside large sums as provisions for bad loans, its NII and NIM improved sequentially by 1.2% and 10 bps, respectively, indicating that its turnaround was not only about lower provisions. PS Jayakumar, MD & CEO, attributed the expansion in NIM to the bank running down high-cost liabilities.
However, the reason behind the expansion in the NIM – a 40 bps (q-o-q) drop in cost of deposits and a 34 bps (q-o-q) rise in yield on advances – is ironic since it comes in the very first quarter of the Reserve Bank of India (RBI) making the marginal cost of funds-based lending rate (MCLR) mandatory for banks to use as the benchmark
On contraction of the balance sheet, the MD said the bank consciously ran down certain unprofitable assets in international business, but stuck to 8-10% credit growth guidance provided earlier.