Bank of Baroda's Woes: From Profit Forecast To Massive Rs 3,200 Cr Loss

Bank of Baroda shares dropped 10 per cent today, following the state-run lender's second successive quarter of big losses. Monday's selloff was in contrast to the 25 per cent one-day rally posted by Bank of Baroda in February on the back of an equally bad Q3 in which the lender posted a loss of Rs 3,350-crore.

February's rally was triggered by Bank of Baroda's management's guidance that India's second largest state-run lender will return to profitability in the March quarter. It now seems that Bank of Baroda's bad loan woes run deeper than what its management, led by its first outsider managing director PS Jayakumar, had claimed, analysts said.

Here are five things to know about Bank of Baroda's Q4:

1) Bank of Baroda's Q4 loss of Rs 3,230 crore was on account of higher provisions (primarily for bad loans), which more than tripled from a year earlier to Rs 4,880 crore in Q4. Its gross bad loan ratio widened to 9.99 per cent in the March quarter.

2) Bank of Baroda had to increase allocation for retirement funds; it also set aside more money to improve its provision coverage ratio (PCR) from 53 per cent in December to 60 per cent in March. These factors led to further widening of overall provisions hurting the bottom line. The lender aims to increase its PCR to 68 per cent by March 2017.

3) Bank of Baroda's Q4 loss could have been much wider, but for tax write-backs of Rs 1,050 crore.

4) Like its private sector counterparts Axis Bank and ICICI Bank, Bank of Baroda has created a watch list, comprising loans worth Rs 26,900 crore (7 per cent of its overall loans), said domestic brokerage Religare. Nearly 57 per cent of loans under the watch list can turn bad in FY17, it added.

5) Bank of Baroda expects to add about Rs 5,000 crore of bad loans in FY17 to current outstanding bad loans of about Rs 40,500 crore. In FY16, the lender's bad loans jumped by Rs 24,300 crore. This guidance is being seen as a positive, but unlike the previous quarter, analysts are not taking Bank of Baroda's claims at face value this time.

"We have doubts on its loan recovery guidance of Rs 10,000 crore for FY17, which is five times that of FY16... Although BoB's new management looks forward to regain its lost glory, we remain cautious on the stock's performance post run-up," said Nirmal Bang Securities. The brokerage downgraded the stock to "sell" with a target of Rs 130.

Kotak Securities said that the worst of bad loan problem may be behind for Bank of Baroda, but it downgraded the stock to "reduce" from "add".

"We are increasingly worried as the bank would probably take a few years longer than expected to reach steady state return of equity of nearly 15 per cent," the brokerage said.

Bank of Baroda shares closed 8.25 per cent lower at Rs 142.30, underperforming the broader Nifty, which gained 0.6 per cent to end at 7,861.