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Analyst Meet / AGM - Analyst Meet

Saving bank rate cut to help interest expense saving of Rs 110 crore in Q2FY2018

Bank of Baroda

14-Aug-2017, 02:11
Bank of Baroda conducted an analyst meet on 12 August 2017 to discuss the financial results for the quarter ended June 2017 and prospects of the bank. PS Jayakumar, MD&CEO of the bank addressed the meet:
Highlights:

The domestic business of the bank has improved 10%, driven by 9% growth in advance and 11% growth in deposits end June 2017. The bank has improved its domestic market share in loans by 20 bps and deposits by 4-5 bps in last six months, while the bank is committed to maintain its market position.
The bank has recorded strong 27% growth in domestic CASA deposits, while improving CASA ratio to 38.77% end June 2017. As per the bank, it has retained about 38-40% of the demonetization related cash deposit inflows.
On loan book front, the retail credit portfolio jumped 19%, while wholesale loon book also increased 9% end June 2017 over June 2016.
The overseas business of the bank has declined 14% mainly on account of run-down of FCNR deposits and linked loans, while the bank is also reducing its low margin buyer's credit book.
The bank has exhibited increase in Gross NPA and Net NPA ratios at 11.40% and 5.17% respectively end June 2017. However, the Provision Coverage Ratio (PCR) was retained at healthy level of 66.28% end June 2017, while bank aims to improve PCR to 70% in FY2018.
The fresh slippage of loans was higher at 5200 crore in Q1FY2018, while the NPA reductions through recoveries, upgradations and write-off were lower at Rs 1746 crore on account of negligible write-offs.
As per the bank, the agriculture sector contributed Rs 868 crore of fresh slippages in Q1FY2018, of which Rs 600 crore were on account of farm loan waiver. MSME segment contributed slippages of Rs 1050 crore, retail Rs 369 crore and large corporate at Rs 1930 crore in Q1FY2018.
The accounts impacted due to demonetization have also caused slippages of Rs 550 crore in Q1FY2018. Within the large corporate segment, two weak accounts from telecom and EPC segment served about 80% of the slippages in corporate segment in Q1FY2018.
As per the bank, the top 50 NPA accounts have exposure of Rs 20000 crore end June 2017.
The bank has exposure of Rs 7900 crore to 10 out of 12 accounts identified by the Reserve Bank of India for speedy resolution under IBC. The bank holds 53% provisions on these accounts, while its required to make additional provisions of Rs 890 crore in FY2018, most of which were already factored in on account of aging of these accounts.
The Net Interest Margin (NIM) for domestic operations stood at 2.48% while NIM for Global operations stood at 2.12% for Q1FY18. About 50% of the loan book has shifted to MCLR based lending rate system end June 2017. The MCLR is about 125 bps below the base rate. The margins and interest income of the bank was impacted due to interest income reversals of Rs 172 crore in Q1FY2018. The bank is also targeting to improve NIMs to 2.5% in FY2018.
The standard restructured assets of the bank were Rs 11819 crore end June 2017.
Despite the weak performance in Q1FY2018, the bank has maintained its guidance on various performance parameters for FY2018.
Bank expects the pace of mortgage Loan book to accelerate going forward. The share of mortgage loan book is expected to improve 6 to 8% over a period of time. The bank expects double digit loan growth for a retail loan segment. The bank is targeting domestic loan book growth of 15% in FY2018.
The bank has targeted to improve its non-interest income. The third party product distribution contributed income of Rs 18 crore at operating profit level.
The bank has contained its employee expenses at lower level with the help of lower provisioning requirement under AS-15.
As per the bank, the reduction in savings bank rate would help to reduce interest expenses by Rs 110 crore in Q2FY2018.
The bank has exhibited about 90 bps reduction in the share of unrated loans in Q1FY2018.
The bank exposure to refinancing under strategic debt restructuring scheme stands at Rs 3484 crore, S4A scheme at Rs 2612 crore and 5/25 scheme at Rs 6133 crore end June 2017.
The SMA -2 category loans of the bank stood at Rs 9300 crore end June 2017.
On international business front, the bank is focusing on shifting of the businesses to location where the source of fund is relatively cheap to improve margins. The bank has completed reassessment of International presence based on a comprehensive cost-benefit evaluation framework.
The implementation of Tab banking in Mumbai has helped the bank to improve the share of paperless account opening to 90% in Mumbai zone, thereby enhancing customer experience and releasing staff for business development activities.
The bank has entered into an MoU with Paytm for launch of Paytm branded cards by October 2017.
The customer base of the bank has accelerated to 73 million end June 2017 from 71 million end March 2017.
The execution of various strategic initiatives continues to be underway as part of Project Navoday - the Bank's comprehensive business transformation that seeks to deliver a differentiated world-class customer experience enabled by an energized and engaged team. The transformation journey aims at improved market share, quality business growth, portfolio diversification and enhanced fee income, with cutting edge digitization of processes, while ensuring due focus is accorded to compliance and controls.