- Domestic loan growth accelerates further
- Domestic C/D ratio improves; despite this, NIM declines by 10bps qoq
- Fee growth bounces back; C/I ratio improves on higher other income
- Sustained lower influx of impaired assets was the big positive surprise
- RoA to improve over FY14-16; however, recent sharp rally caps medium-term upside
|(Rs mn)||Q4 FY14||Q3 FY14||% qoq||Q4 FY13||% yoy|
|Total Interest Income||102,886||96,907||6.2||90,716||13.4|
|Net Interest Income||31,243||30,571||2.2||28,140||11.0|
|Key Ratios||Q4 FY14||Q3 FY14||chg qoq||Q4 FY13||chg yoy|
|Global yield on advances||8.2||8.3||(0.1)||8.6||(0.5)|
|Global yield on inv||7.8||7.8||0.0||7.7||0.1|
|Global cost of deposits||5.3||5.2||0.0||5.8||(0.5)|
|Domestic CASA (%)||31.8||32.3||(0.5)||30.4||1.4|
|Non-interest income (%)||29.8||23.4||6.4||29.7||0.1|
|Cost to Income (%)||42.0||44.9||(2.9)||45.5||(3.5)|
|Ann Credit Cost (%)||0.7||0.9||(0.3)||1.4||(0.7)|
|Gross NPA (%)||2.9||3.3||(0.4)||2.4||0.5|
|Net NPA (%)||1.5||1.9||(0.4)||1.3||0.2|
Domestic loan growth accelerates further
BOB’s domestic loan growth accelerated in Q4 FY14 to 21% yoy from 18% yoy in the previous quarter. On sequential basis, international advances grew by 9% qoq. Bank intends to grow its domestic advances marginally faster than the system in the current fiscal without taking undue risks. Apart from the sluggish macro environment, weak capitalization (Tier-1 at 9.3% under Basel II) would act as constraint to faster growth in the medium term. We expect BOB’s loan book to witness 18.5% CAGR over FY14-16.
Domestic C/D ratio improves; despite this, NIM declines by 10bps qoq
Domestic deposits grew significantly behind advances at 11% yoy but the franchise improved as shedding of high-cost (preferential rate above Rs1cr) deposits continued. The share of such deposits in domestic business stood at negligible 3.4%. Domestic C/D improved by 200bps qoq to 72%. CASA ratio marginally declined to 31.8% on sequential basis but the annual growth in savings deposits remained healthy at 14% yoy.
As against our expectation of stable margin, the domestic NIM of the bank corrected by 10bps qoq to 2.84%. While the blended lending yield in the domestic business was steady during the quarter, the cost of deposits inched-up by 10bps qoq depressing the margin. International NIM also declined by 10bps qoq on account of 20bps fall in the yield on advances. As per the bank, domestic NIM could improve to 3% in the medium term on the back of loan mix shift towards retail and SME segments.
Fee growth bounces back; C/I ratio improves on higher other income
Fee growth improved to 14.5% yoy from 10% yoy in Q3 FY14 and remains much better than most peers. Forex income continued to be elevated at Rs2.7bn. Treasury gains stood modest at Rs0.9bn. There was substantial recovery from written-off accounts of Rs3.7bn which boosted the overall other income of the bank. Opex growth significantly moderated to just 2% yoy mainly attributable to normalization of the base. Aided by higher other income, the cost/income ratio declined to 42% from 45% in previous quarter.
Sustained lower influx of impaired assets was the big positive surprise
BOB’s slippages came in at Rs13bn, much lower than our expectation of Rs16bn. The delinquency ratio has moderated over the past four quarters (from 2.7% in Q4 FY13 to 1.4% in Q4 FY14) in sync with bank’s commentary. Of the slippages during the quarter, Rs5.1bn were from standard restructured portfolio. Cumulatively, BOB has witnessed about 22% slippages from its restructured book. Incremental restructuring was also lower in Q4 FY14 at Rs11.6bn v/s average Rs17bn in the previous three quarters. Both delinquencies and restructuring were granular with no notable concentration of accounts or sectors. The addition rate of impaired assets (slippages + new restructuring) has moderated materially from 5% in Q1 FY14 to 2.6% in Q4 FY14. BOB believes that asset quality stress will continue to abate in coming quarters if the economy starts recovering. Restructuring pipeline also remains modest at Rs13-14bn. Annualized credit cost stood at a multi-quarter low of 70bps; this notwithstanding, PCR improved to 65%.
RoA to improve over FY14-16; recent sharp rally caps medium-term upside
With NIM having bottomed out, revival in fee income and moderation in credit cost, Bank of Baroda’s RoA is estimated to improve materially from 0.75% in FY14 to 0.93% in FY16. On the back of robust Q4 FY14 performance and sanguine commentary, we have upgraded loan growth and asset quality assumptions for FY15/16 leading to a material upward revision in adjusted BV projections. However, given the massive appreciation of the stock over the past three months, incremental re-rating is likely to be gradual in our view. Retain Market Performer rating on Bank of Baroda with a 9-12 month price target of Rs913.
|Y/e 31 Mar (Rs m)||FY13||FY14E||FY15E||FY16E|
|Total operating income||149,459||164,281||195,689||235,684|
|yoy growth (%)||8.8||9.9||19.1||20.4|
|Operating profit (pre-prov)||89,992||93,532||113,267||138,838|
|yoy growth (%)||(10.5)||1.3||34.8||26.0|
|Dividend yield (%)||2.9||2.4||3.0||3.8|