Asset quality woes continue to affect public sector banks' financial performance in December quarter as well, going at least by Bank of Baroda's(BoB) declared financials . It has witnessed a 14.5 per cent jump in non-performing assets (NPAs) sequentially. Consequently, the bank had to set aside higher provisioning for these NPAs.
This coupled with provisions for investment depreciation (due to fall in bonds and equities prices) put pressure on the BoB's profitability.
The provisions for deteriorating assets and investments during the third quarter went up 180 per cent year-on-year.
But the heartening aspect for the bank is that the profits continue to grow at a robust pace with 20 per cent growth achieved in the December quarter.
Profits were primarily driven by higher non-interest income contribution and curtailed operating expenditure. A 25 per cent growth in assets didn't translate into a strong net interest income growth. Net interest income grew by 15 per cent as the bank witnessed decline in net interest margins (NIM). Decline in NIM was partly due to rise in yields not keeping pace with the cost of funds. The NIMs declined despite the spreads on international book improving. With yields peaking for BoB, only fall in deposits can improve NIM going forward.
The non-interest income of BoB grew by 70 per cent which largely contributed to high profit growth. Even in non-interest income, it is the volatile items such as trading gains (354 per cent growth) and gains on forex transactions (63.7 per cent growth) which aided the other income.
Asset quality risk
The gross NPA ratio of BoB rose from 1.41 per cent to 1.48 per cent. Of the Rs 902 crore of fresh slippages during the December quarter, an addition of Rs 301 crore was due to the restructured assets turning bad. The restructured assets have risen by Rs 2,116 crore during the December quarter taking the total stressed asset proportion to domestic advances to 5.5 per cent from 4.6 per cent in September 2011. This increases the risk of future asset quality slippages for the bank. It has net NPA ratio of 0.51 per cent, thanks to adequate provision coverage.