The market seems to be breathing a sigh of relief at public sector banks’ better-than-expected performance in the June quarter, compared to the March quarter.
The market gave a thumbs-up to Bank of Baroda’s better-than-expected earnings for the June quarter.
While BoB reported a 22 per cent decline in June quarter profit against the corresponding quarter last year, the sharp 75 per cent sequential improvement in profit drove up the stock price.
This substantial increase in earnings has primarily been led by the sharp fall in provisioning for bad loans. Earlier this week, Punjab National Bank also found favour with investors due to a marginal improvement in asset quality compared with the previous quarter.
For BoB, gross non-performing assets as a proportion of loans has gone up to 4.13 per cent in the June quarter from 3.72 per cent in the March quarter.
The slippages have gone up to ₹1,685 crore from ₹1,359 crore in the March quarter.
But after adding about ₹4,000 crore to restructured loans in the March quarter, the bank only added ₹147 crore in the June quarter, as the window for restructuring closed from April onwards.
The fall in overall stressed assets has led to lower provisioning and lifted earnings.
Where it missed But the bank has missed on several other fronts.
For one, its net interest income growth continued to remain muted at 3.9 per cent in the June quarter.
This is because its loan growth slipped to 6.3 per cent in the June quarter from 7 per cent in the previous quarter. Two, the bank’s fee-based income also remained weak, with a modest 7 per cent growth. Three, return on assets fell to 0.6 per cent in the June quarter from 0.8 per cent last year. The return on equity fell sharply to 11 per cent from the 15 per cent levels last year.
Going ahead, the pace of slippages into bad loans will need watching, and will hold the key to the stock's performance.