Overview

The Bank of Baroda (NSE:BANKBARODA) was founded by the Maharaja of Baroda, Maharaja Sayajirao Gaekwad III on 20 July 1908. The bank, along with 13 other major commercial banks of India, was nationalised on 19 July 1969, by the Government of India and has been designated as a profit-making public sector undertaking (PSU).1

Indian Economy

India’s FY 2020 growth slipped to 4.2% from 6.1% in FY 2019, its lowest since FY 2009. The decline was led by investment demand at - 2.8% from an increase of 9.8%. Even consumption slipped to 5.3% in FY 2020 from 7.2% in FY 2019. Government spending maintained its momentum during the year. From a sectoral perspective, agriculture sector was the only one which stood out in the year and supported rural consumption and demand. Even this year, monsoon is expected to be normal which should support the rural economy.2

Industrial activity was relatively subdued in FY 2020 and increased by only 0.9% compared with an increase of 4.6% in FY 2019. The dip in industrial activity was led by manufacturing sector which registered an increase of only 0.1% in FY 2020. Services activity was also muted and increased by 5.5% compared with an increase of 7.7% in FY 2019. Growth slipped in Q4 FY 2020 on the back of domestic and global disruptions on account of measures taken to restrict the spread of COVID-19.

While growth came off, CPI inflation edged up to 4.8% in FY 2020 from 3.4% in FY 2019. This was on account of higher food inflation. Food inflation build-up was visible in H2 FY 2020 at 10.9% compared with -1.5% in H2 FY 2019. Unusual supply disruption due to weather and higher vegetable prices were responsible for increase in food inflation. Core inflation, however moderated to 4% in FY 2020 compared with 5.8% in FY 2019, especially on account of muted oil prices and slowdown in demand.

While this year is expected to be challenging due to disruptions caused by COVID-19, rural consumption may remain buoyant due to higher output and increase in Minimum Support Prices. Migration from urban to rural areas and higher government spending on Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) imply rural demand will be higher in the year. The government along with RBI has announced a monetary and fiscal package of Rs 21 lakh crore to mitigate the impact on the economy.

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Developments in Indian Banking

Credit growth of Scheduled Commercial Banks (SCBs) declined to a multiyear low of 6.1% in FY 2020 from 13.2% in FY 2019. While retail loans continued to remain buoyant, growth in agriculture, MSME and corporate sector declined due to a fall in demand as seen in lower GDP growth. However, deposit growth continued to show traction at 7.9% YoY in FY 2020. Besides subdued credit growth, the banking sector saw some semblance of improvement in asset quality triggered by effective resolution of some accounts under IBC and improved capital position due to recapitalisation of Public Sector Banks (PSBs).

In view of relatively muted economic momentum, RBI reduced policy repo rate by 135bps between February 2019 and October 2019. It was followed by another 115bps rate cut in February and March 2020. In order to improve interest rate transmission to real economy, RBI introduced external benchmark system from October 1, 2019 for pricing of new retail loans which was extended to MSME loans on April 1, 2020.

Along with rate reduction, RBI announced significant measures to support the economy. First, it advised that banks may extend a three month moratorium to customers on account of impact of COVID-19. This was further extended by another three months. However, banks would have to provide additional provision of 10% on the accounts claiming benefit of standstill clause which otherwise would have been declared NPA. Second, it gave banks the flexibility to extend working capital loans to borrowers by increasing drawing power. Third, RBI provided credit lines to NABARD, SIDBI, NHB, EXIM Bank and SCBs to ensure there is enough transmission of liquidity to RRBs, mutual funds and HFCs/NBFCs. Fourth, it infused durable liquidity by way of long term repos, targeted long term repos and Open Market Operations (OMOs.) As a result, liquidity surplus of SCBs increased to an average of Rs 1.8 lakh crore in FY 2020 compared with a deficit of Rs 1.2 lakh crore in FY 2019.

The cumulative impact of RBI’s liquidity infusion in the banking system led to 65bps decline in median lending rates and 47bps decline in median term deposit rates. Long-end (10 year) sovereign bond yield fell sharply by 121bps in FY 2020.

Government of India too announced a series of reform measures for the banking sector. First, the number of PSBs has been reduced to 12 by way of merger of 10 PSBs into 4 large PSBs. Second, Government also recapitalised PSBs in FY 2020 with a total capital injection of Rs 65,443 crore. Bank of Baroda too received capital of Rs 7,000 crore. Third, corporate tax rate was reduced for all corporate entities including banks. Fourth, Government announced Rs 21 lakh crore package for the economy which included a package of Rs 3 lakh crore for onward lending to MSME sector.

Business Overview

The Bank’s absolute CASA deposits crossed the Rs 3 lakh crore milestone and reached Rs 3.16 lakh crore as of March 31, 2020. The Bank opened 94.70 lakh new CASA accounts during FY 2020 of which bulk of the eligible accounts were opened through TAB Banking. The Bank introduced a host of new products and implemented several new initiatives to improve its processes and strengthen the product proposition to meet the enhanced customer expectations.

Credit Expansion

During FY 2020, credit growth increased to Rs 6,90,121 crore as on March 31, 2020 within which domestic advances of the Bank amounted to Rs 5,70,341 crore. The increase in domestic advances was led by retail loans and agriculture loans. Retail loan increased to Rs 1,20,657 crore led by home and auto loans at Rs 83,012 crore and Rs 16,490 crore respectively. With this, the ratio of retail loans to total domestic loans increased to 19.8% during the year. The international loan book grew by 21.4% to Rs 1,19,731 crore as on March 31, 2020.

The total assets of the Bank increased to Rs 11,57,915 crore as on March 31, 2020.

The interest income of the Bank increased to Rs 75,984 crore during FY 2020. The global yield on advances increased to 7.99% from 7.65% and yield on domestic advances rose to 8.82% from 8.67%.

Total interest expenses stood at Rs 48,532 crore in FY 2020. The domestic cost of deposits stood at 5.39%.The cost of deposits in the international book increased from 1.89% to 2.03%. Net Interest Income (NII) for the Bank increased to a level of Rs 27,451 crore during FY 2020. Global NIM has remained constant at 2.72%.

Other income of the Bank increased to Rs 10,317 crore on account of increase in treasury gains to Rs 2,751 crore. Recovery from written-off accounts was higher at Rs 1,532 crore.

Operating expenses increased to Rs 18,077 crore in FY 2020. Employee cost during the year was Rs 8,770 crore whereas other operating expenses were Rs 9,308 crore. As a result, operating profit of the Bank increased to Rs 19,691 crore during FY 2020. Total provisions (other than tax) and contingencies increased to Rs 21,493 crore as provisions for NPAs increased to Rs 16,405 crore in FY 2020. The Bank posted a net profit of Rs 546 crore in FY 2020.

Corporate Credit

Corporate credit in the Bank is serviced through 14 Corporate Financial Services (CFS) branches which manage about 77% of the total corporate credit portfolio of the Bank. The corporate credit portfolio of the Bank increased to Rs 2,91,543 crore as on March 31, 2020.

Total portfolio comprising of investment grade (BBB and above) in FY 2020 was 80% as against 74% in the previous year. Exposure to high rated accounts has helped to reduce capital charge and enhanced capital efficiency

MSME Credit

The MSME portfolio as on March 31, 2020 stands at Rs 87,328 crore. The Bank added 94,775 new MSME customers to its base in FY 2020. To provide access to working capital to MSMEs at competitive rates on Trade Receivables electronic Discount System (TReDS), the Bank on-boarded itself on all the three TReDS platforms. As on March 31, 2020, the TReDS business accounted for Rs 385 crore. The Supply Chain business, which aims at addressing the working capital requirement and liquidity support to the MSMEs, has an outstanding book of Rs 721 crore as on March 31, 2020. It is backed by a fully digitised supply chain financing product and has provided a new vehicle for sourcing of MSME customers, specifically vendors and suppliers of anchor corporates.

The Bank serves the MSME sector through 37 dedicated SME processing cells named ‘SME loan factories’ and a wide network of branches servicing the MSME segment with a target market approach. Upon amalgamation, products and processes of the three entities have been harmonised to reach out to existing and new customers.

Supporting the Government's efforts under MUDRA scheme on employment generation, the Bank disbursed Rs 10,303 crore to the sector, thereby achieving the targets set for FY 2020. The Bank also extended credit of Rs 2,194 crore to SC, ST and women entrepreneurs under the Stand-Up India programme since the launch of the scheme. The Bank devised a product “Baroda Tankerz Scheme” for financing LPG tankers to SC/ ST borrowers under Stand-Up India scheme and was ranked first amongst PSBs during FY 2020. Under support of the Government’s initiative to augment MSME units by speedy sanction of MSME loans through the ‘PSBloansin59minutes’ portal, the Bank was ranked first amongst all PSBs in terms of in-principle sanction/ final sanction/ disbursement, as on March 31, 2020.

The Bank entered into a MoU with Government of Gujarat for hassle free finance to MSME borrowers and to be the preferred Bank under the Government of Gujarat’s portal for the new entrepreneurs in the identified industrial area.

The Bank also opened 15 startup branches across India to cater to the needs of new entrepreneurs under “Make in India” initiatives by Government of India.

The Bank commissioned a dedicated team for financing commercial vehicles, and construction and mining equipment for the MSME segment. For this purpose, Bank entered into a strategic alliance with Tata Motor Finance Ltd. and SREI for capturing new business in the commercial vehicles segment. Further, the Bank on-boarded clients under a new scheme ‘Value Chain Finance’ which is specifically designed to address the working capital requirements of such MSME customers who are dealing with anchors having maximum turnover of up to Rs 2,000 crore.

Retail Credit

The retail portfolio of the Bank increased to Rs 1,20,657 crore as on March 31, 2020. The share of retail loans increased to 19.8% as of March 31, 2019 of domestic advances as against 18.3% as on March 31, 2019. This was possible as the Bank constantly strives to provide seamless credit delivery to customers in a hassle free manner

The Bank achieved 99.47% of the disbursement target given by Ministry of Finance for education loans. Although education loan market contracted by delete 3.30%, the Bank registered a growth of 16.13% on YoY basis. The Bank was also adjudged as Best Buy for customer in education loans by Consumer Voice, which is an organisation supported by Ministry of Consumer Affairs under ‘Jago Grahak Jago’ campaign. The Bank also continued to gain market share in vehicle loan business.

Rural and Agricultural Lending

The Bank has a network of 2,934 branches in rural and 2,525 branches in semi urban areas which are leveraged for priority sector and agriculture lending. The Bank’s agriculture advances grew to Rs 87,921 crore as on March 31, 2020.

The Bank is the convener of State Level Bankers’ Committee (SLBC) in 3 states i.e. Uttar Pradesh, Gujarat and Rajasthan and Union Territory Level Bankers’ Committee (UTLBC) in 1 Union Territory i.e. New Union Territory of Dadra and Nagar Haveli and Daman and Diu. Bank also shoulders the Lead Bank responsibility in 67 districts across the country.

The Bank continues to be the leader in lending to agriculture sector which received an impetus with the Government’s vision of doubling farmers’ income by 2022. The Bank has moved beyond granting simple farm credit to a more diversified rural lending strategy by focusing on new products like farm mechanisation, horticulture loans, warehouse receipt financing, financing to Self Help Groups (SHGs) , food and agro-processing and adopting a community based lending model for the small farmers across rural customer segments.

During the year, the Bank issued 3.76 lakh new Kisan Credit Cards. Baroda Kisan RuPay Card, an ATM enabled smart card, was issued to 18.11 lakh farmers.

International Operations

The Bank has 101 overseas branches/ offices across 21 countries comprising of 35 overseas branches, 1 Mobile Unit and 9 Electronic Banking Service Units in 13 countries, 55 branches of the Bank’s eight overseas subsidiaries and one International Banking Unit in GIFT City (SEZ), Gandhinagar, Gujarat, India which deals exclusively in foreign currency. In addition, the Bank has one joint venture viz. India International Bank (Malaysia) Bhd. in Malaysia and one associate bank viz. Indo Zambia Bank Ltd. in Zambia with 30 branches. During the year, Bank’s wholly owned subsidiary at Botswana viz. Bank of Baroda (Botswana) Ltd. opened one new branch at Palapye.

As of March 31, 2020, the Bank’s total business from international branches was Rs 2,57,010 crore and constituted 15.71% of the overall business. Total deposits were at Rs 1,37,279 crore while net advances were Rs 1,19,731 crore.

Treasury Operations

The Bank operates its treasury operations from a state-ofthe-art dealing room at its corporate office in Mumbai. The treasury is a prominent player in various markets e.g. foreign exchange, interest rates, fixed income, money market, derivative, equity, currency and interest rate futures and other alternate asset classes. The Bank offers various services like interest rate swaps, currency swaps, currency options and forward contracts through authorised branches dealing in foreign exchange across India.

The total size of the Bank’s domestic investment book as of March 31, 2020 stood at Rs 2,65,016 crore. The share of Statutory Liquidity Ratio (SLR) securities in total investments was 83.46%. The percentage of SLR securities (unencumbered) to NDTL at March 31, 2020 was at 22.58%.

The Bank demonstrated its capabilities in effectively dealing with extreme adverse circumstances in the market. The Bank has been able to capitalise on the opportunities offered by yield movements. The Bank managed its portfolio efficiently and maintained average yields on investment for FY 2020 at 8.43% (including profit on sale). During FY 2020, the profit on sale of investment and foreign exchange earnings were Rs 2,751 crore and Rs 746 crore respectively.

Government Business

Government business has huge potential to act as an effective vehicle for business growth and contribute significantly to CASA and fee based income.

The Bank is authorised to collect direct taxes through its designated branches and is an accredited banker to the Ministry of Health and Family Welfare and Ministry of Legal Affairs. Bank deployed relationship managers for government business in different states to provide much required thrust to obtain greater share in state government business and for good liaisoning with different departments in the state government for prompt delivery of services and products. Bank was appointed as Sponsor Bank for PM KiSaN of Madhya Pradesh Government.

The Bank is partnering with various departments at the central and state levels in developing e-solutions in line with the digital initiatives of the Government of India, leading to transparency and efficiency. MoUs with Ministry of Tourism, Sports Authority of India, Ministry of Shipping - Haldia Dock Complex, Noida Authority, Razorpay, and Indian Army for salary and pension accounts were signed to enhance fresh business opportunities.

The Bank received recognition by National Saving Institute of Government of India for good work in Public Provident Fund (PPF), Sukanya Samriddhi Yojna (SSA) and Senior Citizen Savings Scheme (SCSS) and by Pension Fund Regulatory Development Authority for the achievement of the targets under APY and NPS.

Wealth Management

Wealth management services remain an area of focus for the Bank and provide investment and insurance services to customers. With the amalgamation, customers of erstwhile Dena Bank and Vijaya Bank were also able to benefit from the value added services and products offered by the Bank through its corporate partners. The Bank strives to be a onestop shop for all financial needs of its customers. The Bank’s flagship programme, ‘Baroda Radiance’ continues to cater to the requirements of High Net worth Individuals through a dedicated structure of relationship managers.

Stressed Asset Management

With an increase in non-performing loans over the years, the Bank revamped its strategy to augment recoveries and reduce slippages. For this, the Bank created a ‘Stressed Assets Management Vertical’, where all major and medium sized NPA accounts are handled by specialised units called Stressed Assets Recovery Branches (SARB) set up at zonal and regional level. These specialised branches are under direct control of the corporate office.

In order to address the large number of small NPA accounts, sector wise special OTS schemes were launched by the Bank. For MSME sector, the Bank launched special OTS scheme “MSME OTS Scheme” to provide opportunity for repayment of dues. For farmers in distress, a special OTS scheme was launched during FY 2020. The Bank continued with its earlier OTS scheme Lakshya II (Lakshya Agriculture, Retail and MSME). The Bank has made recoveries and upgraded NPA accounts amounting to Rs.1,296 crore under these schemes. An application called ‘One Time Settlement Tracking System’ was implemented wherein customers could initiate settlement proceedings online. The Bank also set up a legal war-room for real-time tracking of recovery proceedings and to aid accelerated decision making wherein high value suit-filed accounts are monitored.

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Financial Highlights

Bank of Baroda Q2 results: Net profit at ₹1,679 crore, NII rises 6.8%3

On 29 Oct 2020;  Bank of Baroda posted a net profit of ₹1,679 crore for the quarter ended on 30 September due to lower provision. The lender reported a net loss of ₹864.3 crore for the June quarter. Net interest income (NII) during the quarter grew by 6.8% to ₹7,508 crore. The consolidated net profit stood at ₹1,771 crore in the September quarter.

The bank posted a operating profit of 5,552 crore, an increase of 4% year-on-year, for the quarter under review.

Global advances increased by 5.3% led by domestic organic retail and agriculture loans which grew by 16.81% and 16.52% respectively, the bank said in the regulatory filing. The auto loans grew by 34.8% year-on-year.

"Retail sanctions and disbursements in Q2FY21 are at 119% of last year’s level compared with 37% in Q1FY21 indicating a broad normalization of economic activity," the bank further added.

Provisions in the September quarter declined sharply to ₹3,001.59 crore on a quarter-on-quarter basis. Of these, provisions for NPA stood at ₹2,277.25 crore. In Q2FY20, provisions stood at ₹4,209.16 crore.

Provisions and contingencies for the June quarter declined sharply to ₹3,002 crore, compared to ₹5,628 crore in the June quarter. Of these, provisions for NPA stood at 2,277 crore.

"In accordance with the RBI guidelines, the bank was required to make provisions of not less than 10 per cent of the outstanding advances in respect of borrower account where asset classification benefit has been granted. However, the Bank had made provision at 20 per cent in March 31, 2020 while w.e.f. April, 2020 provision at 10 per cent is made wherever the said benefit is extended to the borrowers," the management said in a statement.

Asset quality has been improved with gross non-performing assets as a provision of gross advances falling to 9.14% in Q1FY21 against 9.39% in the June quarter. Net NPA fell to 2.51% from 2.83% quarter-on-quarter.

Provisioning coverage ratio (including floating provision) improved to 85.35% as on September 2020, compared to 83.30% as in March 2020. COVID-19 related provision stood at ₹1,748 crore, the bank added.

Domestic CASA ratio increased to 39.78%, up by 190 bps year-on-year. Domestic cost of deposits in Q2FY’21 is lower at 4.42%, a decline of 53bps quarter-on-quarter, the bank mentioned. Capital adequacy (CRAR) stood at 13.26% with CET-1 at 9.21% on a standalone basis.

Bank of Baroda Consolidated December 2020 Net Interest Income (NII) at Rs 8,508.16 crore, up 10.85% Y-o-Y 4

January 27, 2021; Reported Consolidated quarterly numbers for Bank Of Baroda are:

  • Net Interest Income (NII) at Rs 8,508.16 crore in December 2020 up 10.85% from Rs. 7675.71 crore in December 2019.
  • Quarterly Net Profit at Rs. 1,195.96 crore in December 2020 up 198.11% from Rs. 1,219.04 crore in December 2019.
  • Operating Profit stands at Rs. 6,410.30 crore in December 2020 up 21.96% from Rs. 5,255.91 crore in December 2019.
  • Bank of Baroda EPS has increased to Rs. 2.59 in December 2020 from Rs. 3.20 in December 2019.

References

  1. ^ https://www.bankofbaroda.in/history.htm
  2. ^ https://www.bseindia.com/bseplus/AnnualReport/532134/5321340320.pdf
  3. ^ https://www.livemint.com/industry/banking/bank-of-baroda-q2-results-net-profit-at-rs-1-679-crore-nii-rises-6-8-11603962596001.html
  4. ^ https://www.moneycontrol.com/news/business/earnings/bank-of-baroda-consolidated-december-2020-net-interest-income-nii-at-rs-8508-16-crore-up-10-85-y-o-y-6404251.html
Created by Asif Farooqui on 2020/11/02 14:10
     
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