Bank of Baroda

Bank of Baroda Business up 17.8%, y-o-y

· Net Profit at Rs 1,168 crore in Q2, FY14 – Same level as in Q1, FY14 & down 10.2% (y-o-y)

· Total Business at Rs 8,24,786 crore at end-Sept, 2013 (up 17.8%, y-o-y)

· NIM (Domestic) at 2.85% & NIM (Global) at 2.32% in Q2, FY14

· Gross NPA at 3.15% & Net NPA at 1.86%

· Improvement in Domestic CASA share from 31.17% in Q1 to 32.65% in Q2 of FY14

· ROAA (annualized) at 0.84%

· ROE (annualized) at 13.61%

· CRAR at 12.32% with Tier 1 at 9.36%

Bank of Baroda has announced its reviewed results for the second quarter of 2013-14 (Q2, FY14) and for the half year ended September 30, 2013 (H1, FY14), following the approval of its Board of Directors on October 31, 2013.

Results at a Glance

Particular	Quarterly Results			Half-Yearly Results
Particular	Q2:FY14 (Rs cr)	Q2:FY13 (Rs cr)	% Change	H1:FY14 (Rs cr)	H1:FY13 (Rs cr)	% Change
Total Income	10,447.31	9,550.86	9.39	21,164.80	18,879.27	12.11
Interest Income	9,473.45	8,722.55	8.61	18,960.39	17,280.16	9.72
Interest Expenses	6,578.66	5,860.25	12.26	13,176.50	11,619.79	13.40
Net Interest Income	2,894.79	2,862.30	1.14	5,783.89	5,660.37	2.18
Other Income	973.86	828.31	17.57	2,204.41	1,599.11	37.85
Total Expenses #	8322.73	7168.28	16.10	16588.60	14243.51	16.46
Operating Expenses #	1744.07	1308.03	33.34	3412.10	2623.72	30.05
Staff Expenses	1030.15	751.21	37.13	2,044.13	1,512.20	35.18
Operating Profit #	2124.58	2382.58	-10.83	4576.20	4635.76	1.28
Provision for Tax	80.10	422.34	-68.00	330.44	630.42	-47.58
Provision (other than tax) & contingencies	860.83	646.41	33.17	1,878.69	1,540.21	21.98
Net Profit	1,168.10	1,301.39	-10.24	2,335.97	2,440.25	-4.27

Note: # excludes the exceptional items of Rs 15.55 crore for Q2 FY 14 and Rs 12.44 crore for Q2 FY 13, as a share of total deficit of Rs 186.58 crore on account of take over by the bank of the specified assets and liabilities of the Memon Cooperative Bank Ltd as per the approval granted by RBI vide letter no DBOD.NO.BP.1311/21.04.048/2010-11 dated 25^th July 2011.

Profits

Despite further worsening of industrial and inflation scenario, the Bank could protect its Net Profit in Q2, FY14 at Rs 1,168.10 crore – the same level as in Q1, FY14. On y-o-y basis, however, its Net Profit declined by 10.2%, as the intensity of economic slowdown and market volatility increased significantly during this period. The Bank’s Operating Profit in Q2, FY14 stood at Rs 2,124.58 crore reflecting a decline of 10.8% (y-o-y). Its Operating Profit and Net Profit in H1, FY14 were at Rs 4,576.20 crore (down 1.3%) and Rs 2,335.97 crore (down 4.3%), respectively, posting a marginal decline on y-o-y basis.

Income

While elevated and sticky interest rates kept the Bank’s Net Interest Income (NII) growth muted during the first half of the current financial year, its efforts to shed high cost preferential rate deposits to the tune of Rs 25,742 crore definitely helped in preventing a further slide in NII. Moreover, a prudent management of trading gains by cashing in on the market volatility also provided good support throughout this period. The Bank’s Total Income stood at Rs 10,447.31 crore (up 9.4%, y-o-y) in Q2, FY14 and at Rs 21,164.80 crore (up 12.11 %, y-o-y) in H1, FY14.

Moreover, after several quarters, the Bank witnessed a healthy increase of 23.1% (y-o-y) to Rs 382 crore in its earnings via “Commission, Exchange & Brokerage” – a key component of its fee-based income in the second quarter of the current financial year.

Expenditure

A significant increase in Operating Expenses of 33.3% (y-o-y) to Rs 1,744.07 crore in Q2, FY14 was primarily contributed by an increase of 37.1% (y-o-y) in Employee Costs on account of the Bank’s prudent and timely provisions against wage revisions, AS-15 benefits (actuarial liabilities), etc. plus additional burden of dearness allowance adjustment on account high retail (CPI) inflation. The same factors have increased Operating Expenses by 30.1% (y-o-y) in H1, FY14 to Rs 3412.10 crore.

Increased Operating Expenses combined with elevated Interest

Expenses due to continued high levels of retail term deposit rates placed the Bank’s Total Expenses at Rs 8,322.73 crore (up 16.1%) in Q2, FY14 and at Rs 16,588.60 crore (up 16.5%) in H1, FY14.

Provisions and Contingencies

Provisions and Contingencies (excluding tax provisions) of the Bank grew by 21.98% during H1, FY14 on y-o-y basis to Rs 1,878.69 crore primarily due to higher provisions against standard advances in accordance with the RBI’s revised restructuring guidelines. The Bank’s efficient management of bond portfolio during Q2, FY14 despite heightened volatility and the RBI’s timely dispensation helped it avoid significant mark-to-market valuation losses.

The Bank’s Provisions for Tax, however declined by 68.0% (y-o-y) in Q2, FY14 and by 47.6% (y-o-y) in H1, FY14 due to a slowdown in earnings and allowable deductions on account of write-offs, etc.

Business Expansion

On a y-o-y basis, Total (Global) Business of the Bank increased by 17.8% to Rs 8,24,786 crore in H1, FY14 from Rs 7,00,330 crore in H1, FY13. While Total Deposits increased by 18.8% to Rs 4,84,931 crore as at end-September, 2013 from Rs 4,08,150 crore as at end-September 2012, Total Advances increased by 16.3% to Rs 3,39,855 crore at end-September, 2013 from Rs 2,92,181 crore at end-September, 2012.

The Bank’s Retail Credit increased by 20.0% (y-o-y) in H1, FY14 to Rs 41,090 crore and formed 17.4% of the Bank’s Gross Domestic Credit. On year-on-year basis, while the Bank’s Credit to SMEs expanded by 40.6% to Rs 51,913 crore, its Farm Credit was down by 2.12% and attained the level of Rs 26,101 crore by end-Sept, 2013. A negative growth in Farm Credit is primarily on account of the revised classification guidelines of the RBI, following which finance given to agro-processing units is getting covered under MSME segment rather than under Indirect Agriculture.

Asset Quality

Both Gross NPA(%) at 3.15% and Net NPA(%) at 1.86% at end-Sept, 2013 were in line with the expectations, given the continued stresses in manufacturing activity. The Cash Recovery (from NPA plus from the written off Accounts) during H1, FY14 stood at the higher level of Rs 585.92 crore versus Rs 447.41 crore in H1, FY13 while the Upgraded Assets amounted to an improved level of Rs 334.44 crore against Rs 238.07 crore in H1, FY13.

Despite the pressure on earnings, the Bank protected its Provision Coverage Ratio at 61.68% as on 30^th Sept, 2013.

Capital Adequacy

The Bank’s Capital Adequacy Ratio was at 12.32% (as per Basel II) as of September 30, 2013 despite a rich expansion of its loan book on year. Its Tier 1 too was at the healthy level of 9.36%. Under Basel III, the Bank’s Capital Adequacy Ratio stood at 12.07% with the Tier 1 level at 9.25% as on 30^th September, 2013.

Key Financial Ratios

· The Bank’s Net Worth expanded by 18.9% (y-o-y) to Rs 34,342 crore as on 30^th Sept, 2013.

· In annualized terms, the Bank’s Return on Equity (%) stood at 13.61%.

· Its Return on Average Assets (%) stood at 0.84%.

· The Bank’s Book Value per Share improved to Rs 815.22 as on 30^th Sept, 2013 from Rs 702.47 as on 30^th Sept, 2012 (up 16.1% y-o-y).

Overseas Business

Currently, the Bank is present in 24 countries through 101 offices. During the financial year so far, the Bank has opened two new branches in its Overseas Subsidiaries – Tanzania and Uganda in June-July, 2013 and closed one OBU (Offshore Banking Unit) in Mumbai.

During H1, FY14, the Bank’s Overseas Operations contributed 32.1% to its Total Business, 25.0% to its Operating Profits and 30.58% to its Core Fee-based Income.

Key Strategic Initiatives during H1, FY14

• The Bank shed Preferential High-Cost Deposits to the extent of Rs 25,742 crore in H1, FY14 to control its cost of funds.

• To give a boost to Retail/MSME businesses, the Bank brought down the effective cost of borrowing not just for new borrowers but also for existing borrowers.

• The Bank significantly strengthened its Credit Monitoring process and the system for “Early Detection of Stress Accounts” so as to undertake speedy follow-up actions.

• The Bank also strengthened its existing Retail & SME Loan Factory set up with marketing professionals. Its Central Sales Offices (CSOs) have been streamlined at the Zonal (or State) level to help create a “Sales and Service Culture” in the Bank. Moreover, it opened three Agriculture Loan Factories on a pilot basis in its Gujarat; Bihar, Orissa & Jharkhand; and Western UP zones during Apr-Sept, 2013.

• The Bank opened 208 new branches in its Domestic Operations and set up 1,476 new ATMs and 1,477 new POS machines (Point of Sale Machines) in H1, FY14. It also opened 30 e-Lobbies during H1, FY14 to offer 24*7 basic banking operations.

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During H1, FY14, the Bank’s HR initiative of Project Sparsh was taken forward for Talent Identification and Creation of Scientific Model for Staffing & Manpower Planning.

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The Bank converted 33 additional Metro and Urban branches into Baroda Next branches during H1, FY14.

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The Bank’s Corporate Financial Service branches and the newly created Mid-Corporate branches have been strengthened significantly during H1, FY14 to contribute to credit growth. As on 30^th Sept, 2013, 8,324 villages with population more than 1,000 have been covered under the Bank’s Financial Inclusion drive. Around 2,647 Ultra Small Branches were in place as of 30^th Sept, 2013 to support this initiative.