Bank of Baroda's Q3 equity capital shrinks on reinterpretation of RBI rules

Bank of Baroda (BoB), whose common equity tier I capital shrunk by Rs 3,517 crore in Q3 on re-interpretation of Reserve Bank of India (RBI) rules, will explore qualified institutional placement (QIP) to raise equity resources for growing business.

The common equity tier I capital (CET-I) in absolute terms declined sharply from Rs 39,632 crore at the end of the second quarter in September 2016 (10.09 per cent) to Rs 36,115 crore (9.28 per cent) at the end of December 2016. Overall, the capital adequacy ratio stood at 12.55 per cent at the end of Q3 of FY17, down from 12.94 per cent for Q2 FY17.

In an analysts call over the weekend, Papiya Sengupta, executive director, BoB, said that reinterpretation of RBI’s rule for computation of CET-I by auditors led to the change in the CET-I base. Certain allocations which were permitted while computing CET-I have been disallowed now.

"The bank is alive to the issue. CET-I of 9.28 per cent in December 2016 is way above the statutory requirement," she added but did not elaborate rules for which components (of CET-I) were reinterpreted leading to the contraction in capital.

The bank has been raising tier I capital. It has raised Rs 1,000 crore through additional tier I (AT1) bonds carrying coupon of 8.5 per cent. It would continue to tap AT1 and tier II bonds for strengthening capital base.

P S Jayakumar, BoB's managing director and chief executive, said that the bank has many ways to raise resources (capital). The operating profits, which were about Rs 2,600 crore in the third quarter, would improve as the bank enters next financial year, he added.

"At this point of time, the bank does not see a need to dilute equity. If the need arises, the bank can come up with QIP at fair rate where government and minority shareholders can participate in equity through rights process," Jayakumar said in analyst call.

At the end of December 2016, the government of India held a 59.24 per cent stake in BoB, followed by Insurance companies with a stake of 12.38 per cent. Foreign portfolio investors (FPIs) had a shareholding of 11.65 per cent, followed by mutual funds with a stake of 8.7 per cent, according to BoB’s filing with the BSE.

After Jayakumar came to head the bank in October 2015, the bank took a stand that it would prefer to generate capital by improving profitability and monetise assets. It would not look to the government for equity support.

The bank's CEO said that it would work to monetise some of its investments, like 18 per cent stake in UTI Asset Management Company which is slated for listing and shareholding in the National Stock Exchange (NSE), for shoring capital base.

BoB posted a net profit of Rs 252 crore in the third quarter ended December 2016 (Q3FY17), as against a net loss of Rs 3,342.2 crore in October-December 2015 (Q3 fy16).

Sequentially, however, the net profit was down from the Rs 552 crore it posted in July-September 2016.

BoB shares closed about two per cent higher at 188 per share on Friday last week on BSE. The Mumbai-based lender had announced results after stock market trading hours.