•             Net Profit at Rs 1,048@  crore in Q3, FY14 (up 3.6%, y-o-y)

•             Total Business at Rs 8,56,218 crore at end-Dec, 2013 (up 19.9%, y-o-y)

•             Net Interest Income (NII) at Rs3,057 crore (up 7.6%, y-o-y)

•             NIM (Domestic) at 2.95% & NIM (Global) at 2.37% in Q3, FY14

•             Net NPA at 1.88%

•             Domestic CASA share protected at  32.27% in Q3 of FY14 versus 32.22% in Q3, FY13

•             ROAA (annualized) at 0.80% in Apr-Dec, FY14

•             ROE (annualized) at 13.05% in Apr-Dec, FY14

•             CRAR (Basel III) at 12.01% with Tier 1 at 8.72% as on 31st Dec, 2013

Bank of Baroda has announced its reviewed results for the third quarter of 2013-14 (Q3, FY14) and for the first nine months ended December 31, 2013 (Apr-Dec, FY14), following the approval of its Board of Directors on February 6, 2014.

Results at a Glance

 #: excludes the exceptional items of Rs 15.55 crore for Q3 FY 14 and Rs 12.44 crore for Q3 FY 13, as a share of total deficit of Rs 186.58 crore on account of take-over by the bank of the specified assets and liabilities of the Memon Cooperative Bank Ltd as per the approval granted by RBI vide letter no DBOD.NO.BP.1311/21.04.048/2010-11 dated 25^th July 2011.

 Profits

Despite continued macro headwinds, Bank of Baroda could grow its Net Profit in Q3, FY14 to Rs 1,048 crore from Rs 1,012 crore in Q3, FY13 (up 3.6%, y-o-y) through a balanced growth of both fund-based and non-fund-based incomes during the quarter. It may be noted that as a matter of prudence, the Bank had to create a Deferred Tax Liability (DTL) of Rs 272.09 crore on its Special Reserve in Q3, FY14 and charge it to its Profit & Loss Account, as per the RBI’s circular dated Dec 20, 2013. In the absence of these revised guidelines, on a stand-alone basis, the Bank’s Net Profit in Q3, FY14 would have been at Rs 1,320 crore, reflecting a y-o-y growth of 30.5%.

The Bank’s Operating Profit stood at Rs 2,197 crore in Q3, FY14 versus Rs 2,256 crore in Q3, FY13 (down 2.6%), as the Bank continued with its prudent provisions against employee expenses. During the first nine months of the current financial year, the Bank’s Operating Profit and Net Profit stood at Rs 6774 crore and Rs 3,384 crore, respectively.

Income

Despite a lack-lustre credit demand and limited pricing power, the Bank could grow its Net Interest Income (NII) to Rs 3,057 crore in Q3, FY14 (up 7.6%, y-o-y), on the back of efficient management of liabilities. During Apr-Dec, 2013, the Bank shed its high cost preferential rate deposits in a significant manner to the tune of Rs 27,939 crore. Moreover, continued support from core fees and trading gains plus strong gains in FX profits boosted the Bank’s Total Income to Rs 10,623 crore in Q3, FY14 (up 9.7%, y-o-y).

During the first nine months of FY14, the Bank’s NII, Other Income and Total Income stood at Rs 8,841 crore (up 4.0%, y-o-y), Rs 3,136 crore (up 28.6%, y-o-y) and Rs 31,788 crore (up 11.3%, y-o-y), respectively. Sequentially, the Bank’s NII has steadily improved from Rs 2,889 crore in Q1, FY14 to Rs 2,895 crore in Q2, FY14 to Rs 3,057 crore in Q3, FY14. The Bank’s Domestic NIM too improved by 11 bps to 2.95% in Q3, FY14 from 2.84% in Q1, FY14, despite a subdued credit sentiment.

Expenses

During Q3, FY14, the Bank’s Interest Expended (at Rs 6,634 crore) posted a relatively modest growth of 10.5% (y-o-y) due to the Bank’s strict monitoring of funding costs. However, Employee Cost increased by 32.3% (y-o-y) to Rs 1,056 crore primarily on account of the Bank’s well-planned provisions against wage revisions, AS-15 benefits (actuarial liabilities) and dearness allowance adjustments. During Apr-Dec, FY14, the Bank’s Interest Expended, Employee Cost and Total Expenses stood at Rs 19,810 crore (up 12.4%, y-o-y), Rs 3,100 crore (up 34.2%, y-o-y) and Rs 25,014 crore (up 15.4%, y-o-y), respectively.

Provisions

“Provisions and Contingencies (excluding tax provisions)” of the Bank declined by 26.0% (y-o-y) during Q3, FY14 to Rs 762 crore, as there was a sizeable write-back on investment depreciation against the equity portfolio. Indian equities had posted a significant increase of 8.5% during Q3, FY14 versus 3.2% a year ago. Moreover, stabilisation of the pace of delinquencies in Q3, FY14 versus Q3, FY13 has kept the provisions against NPAs/bad assets almost “flat” in the current reported quarter. Consequently, the growth in “Provisions & Contingencies (other than tax provisions” was modest at 2.8% in the first nine months of FY14.

The Bank’s Tax Provisions grew by a sizeable 83.7% in Q3, FY14 to Rs 372 crore, as the Bank had to create a deferred tax liability of Rs 272 crore in Q3, FY14 on account of the creation of special reserves, discussed earlier. (Please see the note no. 5 of the SEBI format).

Business Expansion

On a y-o-y basis, Total (Global) Business of the Bank increased by 19.9% to Rs 8,56,218  crore in Apr-Dec, FY14 from Rs 7,14,051 crore in the same period last year. While Total Deposits increased by 21.5% to Rs 5,03,772 crore as at end-December, 2013 from Rs 4,14,733 crore as at end-December 2012, Total Advances increased by 17.8% to Rs 3,52,446 crore at end-December, 2013 from Rs 2,99,318 crore at end-December, 2012.

The Bank’s Retail Credit increased by 20.9% (y-o-y) in Apr-Dec, FY14 to Rs 42,777 crore and formed 17.6% of the Bank’s Gross Domestic Credit. On year-on-year basis, while the Bank’s Credit to SMEs expanded by 39.2% to Rs 54,396 crore, its Farm Credit was down by 4.8% and attained the level of Rs 26,310 crore by end-Dec, 2013.  A negative growth in Farm Credit is primarily on account of the revised classification guidelines of the RBI introduced a year ago, following which the credit given to agro-processing units got covered under MSME segment rather than under Indirect Agriculture until end-October, 2013.

Asset Quality

Both Gross NPA(%) at 3.32% and Net NPA(%) at 1.88% at end-Dec, 2013 were in line with the Bank’s guidance, given the continued stresses in manufacturing activity. The Cash Recovery (from NPA plus from the written off Accounts) during Apr-Dec, FY14 stood at the improved level of Rs 832 crore (versus Rs Rs 586 crore in H1, FY14), while the Upgraded Assets amounted to a better level of Rs 633 crore (versus Rs 334 crore in H1, FY14).

As per the Bank’s guidance from time to time, the Incremental Slippages have steadily declined from Rs 1,960 crore in Q1, FY14 to Rs 1,863 crore in Q2, FY14 to Rs 1,553 crore in Q3, FY14 in the Bank’s global operations. Similarly, the Bank’s “Incremental Restructuring” has been easing sequentially from Rs 2,147 crore in Q1, FY14 to Rs 1,637 crore in Q2, FY14 to Rs 1,213 crore in Q3, FY14.

Despite the pressure on earnings, the Bank protected its Provision Coverage Ratio at 62.22% as on 31st December, 2013.

Capital Adequacy

The Bank’s Capital Adequacy Ratio was at 12.26% (as per Basel II) as of December 31, 2013 despite a sustained expansion in its loan book on year. Its Tier 1 too was maintained at the healthy level of 8.83%. Under Basel III, the Bank’s Capital Adequacy Ratio stood at 12.01% with the Tier 1 capital at 8.72% & Core Tier 1 at 8.35% as on 31st December, 2013.

It may be noted that the computation of these capital adequacy ratios does not take into account the “profits” earned by the Bank during the first nine months of the current financial year. If considered, all ratios would improve by 98 bps.

During the first nine months of the current financial year, the Bank raised Rs 2,000 crore by way of Tier II capital from India in two tranches of Rs 1,000 crore each.

Key Financial Ratios

•             The Bank’s Net Worth expanded by 14.6% (y-o-y) to Rs 34,576 crore as on 31st Dec, 2013.

•             In annualized terms, the Bank’s Return on Equity (%) stood at 13.05% in Apr-Dec, FY14.

•             Its Return on Average Assets (%) stood at 0.80% in Apr-Dec, FY14

•             The Bank’s Book Value per Share improved to Rs 820.79 as on 31st Dec, 2013 from Rs 733.78 as on 31st Dec, 2012 (up 11.9% y-o-y).

•             The Bank’s Domestic NIM improved sequentially from 2.84% in Q1, FY14 to 2.85% in Q2, FY14 to 2.95% in Q3, FY14.

Overseas Business

At present, the Bank is present in 24 countries through 101 offices. During the financial year so far, the Bank has opened two new branches in its Overseas Subsidiaries – Tanzania and Uganda in June-July, 2013 and closed one OBU (Offshore Banking Unit) in Mumbai. During the last quarter of the current financial year, the Bank proposes to set up two new offices, notably in Abu Dhabi and Kenya.

During Apr-Dec, FY14, the Bank’s Overseas Operations contributed 32.4% to its Total Business, 25.2% to its Operating Profits and 33.3% to its Core Fee-based Income.

Key Strategic Initiatives during Apr-Dec, FY14

•             The Bank shed Preferential High-Cost Deposits to the extent of Rs 27,939 crore in Apr-Dec, FY14 to control its cost of funds.

•             The Bank significantly strengthened its Credit Monitoring process and the system for “Early Detection of Stress Accounts” so as to undertake speedy follow-up actions.

•             The Bank also strengthened its existing Retail & SME Loan Factory set up with marketing professionals. As on 31st Dec, 2013, the Bank had 45 Retail Loan Factories and 52 SME Loan Factories operational across India.

•             The Bank’s Central Sales Offices (CSOs) have been streamlined at the Zonal (or State) level to help create a “Sales and Service Culture” in the Bank. Moreover, the Bank opened three Agriculture Loan Factories on a pilot basis in its Gujarat; Bihar, Orissa & Jharkhand; and Western UP zones during the current financial year.

•             The Bank opened 301 new branches in its Domestic Operations and set up 2,491 new ATMs and 3,425 new POS machines (Point of Sale Machines) in Apr-Dec, FY14. It also opened 30 e-Lobbies during the year so far to offer 24*7 basic banking operations.

•             During the year so far, the Bank’s HR initiative of Project Sparsh was taken forward for Talent Identification and Creation of Scientific Model for Staffing & Manpower Planning.

•             The Bank converted 57 additional Metro and Urban branches into Baroda Next branches during Apr-Dec, FY14.

•             The Bank’s Corporate Financial Service branches and the newly created Mid-Corporate branches have been strengthened significantly during Apr-Dec, FY14 to contribute to credit growth.

•             As on 31st Dec, 2013, 10,988 villages with population more than 1,000 have been covered under the Bank’s Financial Inclusion drive. This also includes 2,641 Ultra Small Branches to support this initiative.