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MOSL: BANK OF BARODA (Buy)-Operating performance in line-One-off slippages impact earnings

• Bank of Baroda: Operating performance in line; One-off slippages impact earnings
• (BOB IN, Mkt Cap USD4.2b, CMP INR114, TP INR140, 23% Upside, Buy)
• BoB’s 3QFY19 PAT came in much lower than estimate at INR4.7b (est. INR9.3b) largely due to higher provision for NPAs at INR34.2b. BOB’s front-ended provisions of INR9.2b are in excess of IRAC norms.
• PPoP stood flat at INR35.4b on 3% YoY decline in other income and 17% YoY growth in employee expense due to higher depreciation of INR2.1b and provision of INR1.1b for pension.
• Global NIM came in at 2.69% supported by improvement in international NIMs to 1.99% (+33bp QoQ). Yield on international loans improved by 80bp QoQ to 4.62% as low yielding book of buyer’s credit and LC’s were shrinking and were replaced by high yielding loans.
• Domestic loan growth came in at 21.1% YoY to INR3.5t led by retail loans, which grew 32.6%. Within retail, home/auto loan growth was 33.9% YoY/50.6% YoY, whereas SME loan growth was muted at 4.6% YoY. Total deposits grew by 6.5% YoY to INR6.1t, taking the domestic CD ratio to 71%. Domestic CASA ratio declined 50bp QoQ to 40%.
• Fresh slippages inched up to INR29.3b, of which INR11.7b was due to the IL&FS group, leading to an annualized slippage ratio of 3.7%. Write-off’s for the quarter came in at INR30.5b leading to decline in the GNPA/NNPA ratio to 11.01%/4.26% down 77bp/ 60bp QoQ. Provision for NPAs at INR34.1b (credit cost 2.53%) grew 8.3% YoY as the bank made INR9b of additional provision towards IL&FS and certain other accounts. PCR including technical write-off stood at 73.5%.
• Other highlights: (1) Bank has a total exposure of INR46.8b towards IL&FS, of which INR11.7b slipped during the quarter and the residual continues to remain standard; (2) NPAs in the MSME portfolio trended downwards to 11.2% while the SMA-2 inched up to 3% (+62bp QoQ); (3) within the watch-list, exposure to Power/Roads increased ~21%/~25% QoQ to INR25.8b/INR13.6b.