Bank of Baroda surges over 15%; Management confident to turn profitable in Q4

Bank of Baroda (BoB) has soared 17% to Rs 134 on the BSE, its biggest intra-day gain since May 2015, after the bank has recognised all assets arising out of the Reserve Bank of India’s (RBI) asset quality review (AQR) in the December 2015 quarter (Q3FY16) itself, unlike most public sector banks who have spread it over Q3 and Q4.

The management view that no further issuance of equity capital is required in the foreseeable future and has also advised the Government of India that no further support by way of infusion of equity capital is required.

The management is confident that the bank will make profit in Q4FY16 and expects to provide reasonable return on capital in FY17.

BoB has posted highest-ever quarterly loss by an Indian bank of Rs 3, 342 crore in Q3FY16 on account of an almost five times increase in provisions for bad loans. It had posted net profit of Rs 334 crore in the same period last year. The bank’s net interest income for the quarter declined to Rs 2,795 crore from Rs 3,286 crore a year ago.

BoB’s gross net performing assets (NPAs) stood at 9.68% in December 2015, up from 3.85% last year. Fresh slippages during Q3 were Rs 15,603 crore. The provision coverage ratio (PCR) stood at 52.70%.

Meanwhile, Religare Institutional Research cut BoBs FY16-FY18 earnings estimates to factor in the sharp rise in provisions and to account for the loss reported in Q3.

“Despite the cleanup exercise, we maintain SELL and move to a lower Mar’17 target price of Rs 115 (from a Sep’16 TP of Rs 145), as valuations are rich at 1.5x FY17E adjusted book value despite assuming lower net NPA by FY17-end and a 30% hit to the restructured portfolio,” as per report dated February 13, 2016.

At 10:23 AM, the stock was up 15% at Rs 132 on the BSE. The trading volumes on the counter more than doubled with a combined 20.57 million shares changed hands on the BSE and NSE.

Bank Of Baroda