BoB’s Q2 show leaves a lot to be desired

That said, the bank’s shares fell nearly 5% in the last hour of trading after the results were announced. A modest 2.11% rise in net interest income and higher slippages have worried investors. Operating profit also saw a decline of 5.76% y-o-y and was flat sequentially, given the massive increase in core interest income.

Part of this is due to the slow growth of 2.99% in the loan book of the lender. Bank of Baroda’s home loan book was supported by double-digit expansion in its retail loan book. In the retail sector too, risk-averse personal loans, auto loans and gold loans showed the fastest growth. Unsecured loans grew by 33 per cent, while gold loans grew by 35 per cent. Home loans grew at a nominal rate of 5.09% annually.

To be sure, the management has said that unsecured portfolios and even auto loans have performed well in the last two years despite the pandemic. “We have seen this portfolio perform through the first and second waves. Crimes have remained low despite the challenges,” said managing director Sumit Chadha in a post-earnings conference call with reporters. The bank is comfortable with rapid growth in these portfolios, he said. Small business loans have also shown healthy Growth despite this group being the most vulnerable to the impact of the pandemic. Credit to micro, small and medium enterprises grew by 4.12%, and the lender expects the performance of this portfolio to remain stable.

This brings us to the corporate loan book. Most banks have reported low single-digit growth in their corporate loan disbursements, and some have even reported contraction. Bank of Baroda’s corporate loan book was flat from a year ago. It should be noted that the portfolio showed a sharp contraction of 11% in the June quarter. Chadha said disbursements in this segment are currently increasing, and the utilization of working capital sanction limit will increase in the coming quarters.

His remarks are in line with similar statements by the heads of other banks. “We are seeing some activity in brownfield projects in sectors like steel. Unlike earlier, where we saw new players, this time strong existing companies are coming up with investment plans. So, the quality of these loans will be good,” Chadha said.

The revival in corporate credit growth will be crucial for not only Bank of Baroda but also other lenders to show a decent loan book growth in FY22. It is not as easy as it seems. Capacity utilization has been below 70% in the latest round of survey by Reserve Bank of India (RBI). In fact, bankers, including Chadha, pointed out that the growth in term loans will not be easy as businessmen still shy away from increasing investments. In short, companies are reluctant to increase capacity or set up new factories. Bankers are mainly relying on the boom in working capital loans.

Since the loan book for the bank did not expand much, the decline in the bad debt stock appeared to be lower in terms of ratio. Gross bad debt ratio declined slightly to 8.11% for the September quarter. But it’s not just an optically retarded improvement in asset quality. As far as the lender is concerned, investors would be right not to leave their worries on stress. remained at slippery height 5,223 crore due to slippage of a single large corporate debt account. the lender has Restructured loan of Rs 20,000 crore, which is 2.8% of its loan book. In addition, write-offs also remained high 5213 crores. While the management has assured that its fast-growing retail book quality is impeccable, it cannot be denied that unsecured loans do not do well during periods of stress. As stress eased only marginally, loan loss provisions increased, although overall provisions fell 2%.

The September quarter performance does not justify the 16% rally in the bank’s shares in the past one month. For the valuations to survive, Bank of Baroda will only need to act on the approach laid down by it.