Bank of Baroda's FY15 Annual Report analysis provides interesting insights on the domestic business as highlighted below.
Over FY12-15, BOB's domestic PAT has fallen at a CAGR of 12% vs. assets growth of 13%. This resulted in a sharp 70bps drop in domestic ROA to 0.6% (FY15) during the same period. Tepid growth, falling asset quality and higher opex were a drag on ROA. Despite this BOB's ROA is a good 15-40bps higher than most PSBs, even while maintaining high coverage ratio.
This was led by credit risk weights % loans jumping 135bps to 81.8%. Exposure (FB+NFB) towards perceived riskier sectors rose to 30.7% vs. 27.0% of domestic book. Sharp rise was seen in Textiles (+6.1% vs. 4.9%) and Metals (8.5% vs. 6.3%). This has also led to deterioration in domestic loan mix with granular segments' (retail and MSME) share falling to 31.3% vs. 36.8% YoY.
BOB's domestic GNPA % jumped 100bps to 4.6%. Rise in NPLs was seen across segments especially in; Industries segment (35% of domestic loans) where GNPA rose by 217bps to 7.2% and Services segment (48% share) where GNPA inched up 96bps to 2.9%.
Unlike most PSBs which saw sharp NIM compression, BOB reported marginal uptick. It's domestic NIM improved by 4bps to 2.9%, despite elevated stressed assets additions. This nominal rise in domestic NIM was largely driven by rise in domestic CASA ratio by +125bps to 33% and decline in domestic high cost deposits to ~0.9% vs. 5.1%.
Commenting on the Bank of Baroda, HDFC Securities said, "BOB's domestic business has witnessed considerable weakness over the last couple of years. Its FY15 annual report suggests that risks have only increased. We cut earnings by 9/4% for FY16/17E respectively as we raise our slippages (and hence) provisioning assumptions. Nonetheless BOB stands out from other PSBs with its (1) high Tier-I at nearly 10.4% and (2) low NNPA/Net-worth ratio at a mere nearly 21%. Thus we see low dilution risk in near to medium term, which drives our positive stance. Stock trades at nearly 0.85x FY17E ABV. Maintain Buy."
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