Bank of Baroda reported its highest-ever quarterly profit, well above estimates. Most of the improvement came from other income, which almost doubled, while core lending income grew only 9% and margins fell below the bank’s own guidance.
Bank of Baroda reported standalone net profit of ₹6,532 crore for the September quarter, up 35.8% from ₹4,809 crore a year earlier and its highest ever. Analysts had expected about ₹5,290 crore, so the result was about 23% above estimates. Operating profit rose 50.9% to a record ₹11,430 crore.
Net interest income, the difference between interest earned on loans and interest paid on deposits, rose 9% to ₹13,026 crore. That is reasonable, but not enough to explain a 36% rise in profit.
Margins narrowed. Global net interest margin (NIM) fell to 2.74% from 2.77% in the June quarter. That is just below the 2.75–2.9% range Bank of Baroda had guided for the year. Deposit costs are rising as banks compete for funds, and loan rates have not risen as quickly.
Other income
The main driver was non-interest income, which rose 95.8% to ₹6,881 crore, almost double the year-earlier level.
Non-interest income includes fees, treasury gains from trading government bonds, and recoveries from loans previously written off. It tends to be less stable than interest income. Gains from selling bonds, or one-time recoveries, can make a single quarter look strong without indicating ongoing improvement.
The bank has not fully broken down the components, but such a sharp rise in one quarter usually suggests a large contribution from one-time items, such as treasury gains or written-off recoveries, rather than steady fee growth.
Provisions also rose
Provisions, money set aside for possible loan losses, rose 93% to ₹2,382 crore, from ₹643 crore in the June quarter. That could mean the bank is being cautious and building buffers, or that it expects some deterioration. With higher interest rates and fuel costs affecting small businesses, building buffers would be sensible.
Asset quality is still healthy. Gross NPAs were 1.78%, and the capital adequacy ratio was a comfortable 16.61%.
How it compares with other PSU banks
Bank of Baroda’s results fit the pattern among public sector banks this season. Indian Overseas Bank’s profit rose 56%, helped by lower taxes. Bank of India’s rose 25%. All are reporting record profits and lower bad loans.
The question for each is how much of the improvement comes from core lending and how much from one-time items. For Bank of Baroda, the answer this quarter is that much of it comes from one-time items.
What to watch
The next quarter will show whether non-interest income stays high. If it falls back while margins remain below guidance, profit growth will slow sharply. The RBI’s rate increase in October should eventually help margins, but rising deposit costs could offset that.
About The Author
