Bank of Baroda

Update on the Indian Equity Market:

On the last trading day before the Union Budget is presented, Nifty 50 ended at 13,635 (-1.3%) dragged by auto and IT stocks. Among the sectoral indices, PSU BANK (+1.7%), PRIVATE BANK (+0.9%), and BANK (+0.7%) led the gainers. AUTO (-2.9%), IT (-2.6%), and METAL (-1.9%) ended the day with losses. Among the stocks, INDUSINDBK (+6.1%), SUNPHARMA (+4.3%), and ICICIBANK (+2.0%) led the gainers, while DRREDDY (-5.3%), MARUTI (-4.8%), and HEROMOTOCO (-3.7%) led the index losers.

Excerpts of an interview with Mr. Sanjiv Chadha, MD, and CEO, Bank of Baroda (BANKBARODA) with CNBC TV-18 aired on 28^th January 2021:

• The bank recently reported its 3QFY21 results with a strong domestic loan growth reported quarter on quarter (QoQ).
• Domestic advances have grown by 8.2% percent YoY and a large portion has come from retail secured loans. The bank plans to increase the share of retail advances to ensure more risk mitigation, and secured retail loans giving better yield than high-rated coupons.
• The CASA growth for the bank had been good and deposit growth had been in sync with the business strategy. Within CASA, current accounts are growing 18%. This is very important to protect the margins when liquidity is surplus.
• In a liquidity surplus situation, the highly-rated corporates are able to command price which is almost unprecedented. They are borrowing at rates which are never seen before. To grow the loan book and protecting interest rate margins, while on the liability side ensuring a large proportion of book comes from CASA, on the asset side it is secured retail loans which give the combination of being good quality, low loss giving default, and giving better coupon. This is the strategy they are following in coming quarters as well.
• The bank witnessed 6.5% YoY growth in its deposits. As the bank wants to closely align the deposit growth to where the advances growth is, and ensuring good quality of deposits growth. The growth in deposits is in line with the previous quarter.
• The credit cost of the corporate book should start looking better. On the retail and MSME, there still is some uncertainty.
• When it came to restructuring, a very small percentage of borrowers opted for restructuring which would seem to suggest that they are comfortable in terms of paying loans.
• The bank is launching a QIP of Rs 200– 400 bn later in the year.

Consensus Estimate: (Source: market screener and investing.com websites)

• The closing price of BANKBARODA was ₹ 68/- as on 29-Janaury-2021. It traded at 0.5x/ 0.4x/ 0.4x the consensus book value estimate of ₹ 147/ 154/ 168 for FY21E/ FY22E/FY23E respectively.
• The consensus target price of ₹ 65/- implies a PB multiple of 0.4x on FY23E BV of ₹ 168/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Update on the Indian Equity Market:
On Thursday, Sensex gained 115 pts and Nifty topped 12,250. The National Company Law Appellate Tribunal (NCLAT) on Wednesday reinstated Cyrus Mistry as chairman of Tata Sons, holding his removal in October 2016 as “illegal” and it is also aid that Tata Sons’ move to turn into a private company from a public limited was unlawful and ordered its reversal. 

Among the sectors, NIFTY AUTO was up by 1% and NIFTY IT by 0.6%. Among stocks, Yes Bank, TCS and Bharti Airtel shares were among the biggest gainers, gaining up to 7%.

Corporate credit, investments have picked up pace, says Bank of Baroda (BoB) Executive Director Murali Ramaswani

Key takeaways from the interview of Mr Murali Ramaswami, Executive Director, Bank of Baroda; dated 17^th December 2019:

• When asked about exposure to Essar Steel, Mr Ramaswami said that they had exposure to Essar Steel but did not make any money because it was cash outright sale.
• When asked about recovery Mr Ramaswami commented that recovery has been good. As of now, BoB has got about Rs 95,000 mn through National Company Law Tribunal (NCLT). Some have been approved, and some are under approval. Mr Ramaswami is expecting ~Rs 94,500 mn resolutions to happen in next 60 days.
• Mr Ramaswami stated that Slippages have come down. Normally slippages used to be ~Rs 60,000 mn but in 3QFY20E only Rs 40,000-45,000 mn is expected.
• The NPA scenario is improving as a lot of NCLT cases are getting resolved. As of Sept-19, Gross NPA (non-performing asset) ratio is at 10.25 and net NPA at 3.91. Mr Ramaswami expects GNPA to reach below 10 by Mar-20
• Mr Ramaswami commented on loan growth and mentioned that retail segment grew by 7-8% year to date, auto loan is growing at 22-23%, the home loan is growing at around 5-6% and education loan around 11% and other loans around 11-12%. MSME segment has witnessed marginal growth, agriculture grew by 2%.
• He further stated that corporate credit has picked up as far as Bank of Baroda is concerned. BoB has sanctioned about Rs 320 bn in the last one month out of which Rs 90 bn is already disbursed. In the next 15-20 days, another Rs 200 bn disbursement is expected.
• When asked about loan growth Mr Ramaswami stated that he expects loan growth to be ~5-6% in December-19 and if the same momentum continues ~11% growth in March-19.
• He mentioned that the Net Interest Margin (NIM) is at 2.7% domestic and 2.9% Gross. He expects NIM to be above 3% in 3QFY20E as saving bank account grew by 9-10% and bulk deposits are strong. Cost of deposits has come down from 5.14% to 4.46%. 

Consensus Estimate (Source: market screener website)

• The closing price of Bank of Baroda was ₹ 99/- as of 19-December-19. The consensus estimate for Book Value of Bank of Baroda is not available.