Excerpts from an interview of P.S.Jayakumar, CEO Bank of Baroda with CNBC-TV18

Update on the market: On Thursday, Nifty ended 5 days streak by closing -0.5% at 10,980. Yes Bank, Maruti Suzuki, Tata motors were among the biggest losers. Indiabulls Housing finance ltd, Asian paints, Axis bank were the gainers. Among sectoral indices Auto (-1.81%), Realty (-0.69%), IT(-0.68%), FMCG(-0.71%) closed lower while PSU banks (0.18%),Pharma (0.18%), Financial services (0.24%) ended on a positive note.

Excerpts from an interview of P.S.Jayakumar, CEO Bank of Baroda with  CNBC-TV18

• While having a discussion on amalgamation Mr Jayakumar says 3 things stand out of his mind, one is how do they define new business proposition, the second thing is around the people integration and the third which is equally important is the technology integration.
• Mr Jayakumar says, one of the biggest challenge while integrating is to articulate new business model post the merger or amalgamation.
• In BOB’s case it is about the synergies, the cost structures, cost savings and the revenue pickups that are coming in.
• Customers are getting the benefit of a larger overseas and product platform.
• Mr Jayakumar says, getting the technology integration is the more difficult task because it takes much effort and energy to get in line with core banking systems.
• Speaking about Products link to repo rate, Mr Jayakumar says that there could be some challenges with respect to margins, because pricing depends on external benchmark.
• From earnings perspective, if the dilution that happens because of NPA’s is managed than then there is a pick up that is coming.
• Further adding on margins, he says the consensus view seems to be further decline of 50 basis points (bps) in repo rate.
• From a short-term perspective if the treasury portfolio is improved and some resolutions that the bank is expecting are passed than the bank will be in position to handle the net interest margins (NIM)
• From a long- term perspective, he believes that the monetary transmission takes place and will not affect the margins of the bank.
• Taking about NPA’s Mr Jayakumar says, there are two elements one is slippage number and other is recovery number. He says, that the recovery number would start moving up in Q3 and Q4 as the insolvency and bankruptcy code (IBC) process and the changes then on resolves itself.
• Speaking with respect to BOB’s portfolio, the bank expects the net NPA as of March to be lower than the prior period or prior March and going towards the 3% or sub-3 % percent level.

Consensus Estimate (Source: market screener website)

• The closing price of Bank of Baroda was Rs 96 /- as of 12th September 2019. It traded at a price to Book Multiple (P/B) multiple of 0.6x/0.5x the consensus Book value estimates for FY20/21E of Rs 165/ 179 respectively.
• Consensus target price of Rs 132/- implies a P/B multiple of 0.7x on B/V of Rs 179 for the year ending Mar-21E.