Bank of Baroda Q4 profit halves to Rs 598 cr but shares rise 17%. Here's why

Bank of Baroda, the second largest lender among state-run banks, posted a decline in its net profit for the January-March quarter. The lender’s net profit nearly halved to Rs 598 crore from Rs 1,157 crore in the year-ago quarter, mainly on account of a sharp rise in the overall provisions to Rs 1,818 crore compared with Rs 1,153 crore in the year-ago period and Rs 1,262 crore in the preceding quarter. But BoB shares spiked sharply by about 17.5 percent in the intra-day to Rs 170.40 on BSE as investors were enthused by a notable improvement in the bad loan trend on a quarter-on quarter basis. Gross non-performing assets (NPAs) of the bank fell to 3.72 percent in the January-March quarter compared with 3.85 percent in the December quarter. Net NPAs subsequently fell to 1.89 percent from 2.11 percent in the preceding quarter. [caption id=“attachment_2238294” align=“alignleft” width=“380”]  Gross non-performing assets of the bank fell to 3.72% in the January-March quarter[/caption] In fact, the NPA numbers came much better than that of Punjab National Bank, another large state-run bank, which announced its numbers last week. PNB had posted an increase in the gross NPAs to 6.55 percent in the January-March quarter from 5.97 percent in the preceding quarter. For PNB too, the sharp rise in the provisions made on bad loans, had acted as a dampener to its earnings, pushing PNB’s its net profit by 62 percent on a year-on-year basis to Rs 307 crore compared with Rs 806 crore in the year-ago period. Gross non-performing assets (NPAs) of PNB, during the quarter rose to 6.55 percent of total loans from 5.25 percent in the corresponding period in last year. Net NPAs, during the quarter, increased to 4.06 percent from 2.85 percent in the same period last year. For the markets, which are desperately looking for cues of business improvement on corporate balance sheets, BoB’s bad loan trend is a big positive. As Firstpost has noted earlier, state-run banks had seen a spike in the restructured loan portfolio on account of termination of regulatory forbearance on restructured loans, which translated into their provisioning burden in the January-March quarter. If economic activity picks up in the economy and projects come back on track, state-run banks must see further improvement in their earnings going ahead. For now, BoB is an encouraging signal.