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Analyst Meet / AGM - Analyst Meet

Expects fresh slippages of advances at 15000 crore FY2017

Bank of Baroda

14-May-2016, 02:05
Bank of Baroda conducted an analyst meet on 13 May 2016 to discuss the financial results for the quarter ended March 2016 and prospects of the bank. PS Jayakumar, MD&CEO of the bank addressed the meet:
Highlights:

Fresh slippages of advances was higher at Rs 5930 crore in Q4FY2016 (Fresh Rs 5030 crore and rise in existing NPAs of Rs 900 crore). The domestic segment contributed about Rs 4949 crore of slippages, while about Rs 982 crore of slippages came from international book.
About Rs 2000 crore of fresh slippages came from restructured advance book, while about Rs 1000 crore of slippages were on account of Asset Quality Review (AQR) of the system conducted by the Reserve Bank of India (RBI). About Rs 800 crore of slippages also came from non-funded book, while the amount in the non-funded book pending to be downgraded in FY2017 is significantly lower.
Bank had fully provided for and recognized stressed assets as NPAs identified by the RBI in its AQR in Q3 of FY2016 instead of spreading over H2FY2016. However, about Rs 1000 crore of slippages came from AQR in Q4FY2016, as 2-3 corporate accounts failed to fulfil their commitments.
Despite higher fresh slippages, the bank has maintained asset quality with strong upgradations (Rs 1766 crore) and recoveries (Rs 1434 crore), together at Rs 3200 crore, in addition to write-offs of Rs 1142 crore in Q4FY2016.
The bottom lines of the bank were mainly dragged by higher provisions. Bank has made additional provision of Rs 2900 crore in Q4FY2016 to scale up NPA provision coverage ratio (PCR) to 60% at end March 2016 from 52.7% at end December 2015. Bank has made additional provisions of Rs 1564 crore in Q4FY2016 for employee pension benefit on account of change in the assumptions for actuarial calculation with the shifting of mortality rate table. Further, the bank also settled tax liabilities for UAE operations making tax provision for Rs 400 crore, and liabilities have been reduced to Rs 400 crore.
As per the bank, the cumulative provisions for raising PCR, employee benefit and tax liabilities at Rs 4800 crore were higher than net losses for the quarter. Bank has also made provisions at the higher rate of 20%, instead of regulatory requirement of 15%.
Bank continues not to sale assets to Asset Reconstruction Companies (ARCs) in Q4FY2016. The securities receipts on the banks book stood at Rs 710 crore at end March 2016.
Bank has conducted 5/25 refinancing for 3 accounts with the exposure of Rs 970 crore in Q4FY2016, while there was no Strategic Debt Restructuring (SDR) in the quarter ended March 2016.
Total Restructured Standard Assets of the Bank declined to Rs 13735 crore at end March 2016 from Rs 17135 crore at end December 2015. Reduction in the restructured advance was on account of slippages of Rs 2000 crore and upgradation of Rs 1200 crore State Electricity Board (SEBs) advances on conversion to bonds. Bank has balance Rs 800 crore of SEB advances to remain on the books.
Bank has improved Net Interest Margin (NIM) to 2.15% in Q4FY2016 from 1.72% in Q3FY2016. However, the NIM declined to 2.05% in FY16 from 2.31% in FY2016 on account of heavy interest income reversals with surge in fresh slippages of advances.
Bank has consistently shed unprofitable assets and liabilities. In FY2016, bank has cut Rs 27000 crore of higher cost bulk deposits. The balance high cost deposits stands at substantially lower level of Rs 1600 crore at end March 2016. Bank has also improved domestic CASA ratio to 33.5% at end March 2016.

Guidance

Bank expects to improve domestic NIMs to 3% in FY2017 from 2.6% in FY2016, while proposes to improve overseas NIM to 1.25% in the immediate term and 1.75% in the medium term.
Bank has restructured advances worth Rs 13735 crore, and bank has high performance confidence for Rs 7300 crore of restructured advances. The SMA 2 category (interest payment overdue by 60 days) advances of the bank stands at Rs 13153 crore at end March 2016, with high confidence for Rs 5750 crore of advances. Thus, the bank has about balance Rs 6434 crore of restructured advances and Rs 7394 crore of SMA 2 category advance under watch list together at Rs 13828 crore.
On the basis of accounts under watchlist, the bank expects fresh slippages likely to be around Rs 15000 crore for FY2017 lower than Rs 26863 crore in FY2016.
Bank is also expecting strong recoveries and upgradation of Rs 10000 crore in FY2017. As per the bank, it has deployed about 1000 employees to focus on recoveries across the country.
Bank proposes to maintain PCR above 60% in FY2017. Bank expects credit cost to be Rs 0.7-1.15% for FY2017.
Bank expects RoE at 7-8% for FY2017 and improve it to 14-15% in FY2018.