Bank of Baroda (BSE: 532134) is one of the oldest banks in India and the third largest commercial public sector bank after State Bank of India and Punjab National Bank in terms of net profit and total business. It is the fourth largest lender with a net profit growth of 32% and total business growth of 24%. The bank does most of its business in the non-urban market where the competition is low but the risks are comparatively higher. In Q4 2009, the bank’s net profit grew by over 172% to Rs. 7.52 billion, the highest growth rate registered by any bank in the fourth quarter. This was largely due to its sustained net interest margin which was further aided by the minimal fall in the current account and savings account (CASA - also known as low cost deposits) deposits (34.8% in 2009) among the public sector banks.
In the period FY2005-FY2009, the bank’s balance sheet has grown at a compounded average growth rate (CAGR) of 24.50% per year. The bank's loan book has been increasing at a rate in excess of 25%, but deposits have been growing at a slower rate. A higher portion of deposits is extended as advances in the last five years have helped the Bank improve its credit-deposit ratio to 82.36% in FY 2009 from 51.20% in 2005.
Bank of Baroda offers the following services:
Over the years the bank has transformed itself from focusing on core banking activities to universal banking solutions. Bank of Baroda offers a wide array of products and services to corporate and retail customers through a variety of delivery channels and specialized subsidiaries and affiliates in the areas of investment banking, credit cards and asset management.
As of April 2009, Bank of Baroda had a worldwide network of over 3000 branches, out of which 637 were located in Metro cities, 540 in Urban areas, 649 in Semi-Urban locations, 1100 in Rural areas and 74 outside India. By March 2009, the Bank completed Core Banking Solution (CBS) rollout in 2049 domestic branches, accounting for 94% of its business. All CBS branches of the Bank are enabled for interbank remittances through Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer (NEFT), enabled online transfer of funds to any bank or branch in India.  During 2008-09 the bank launched several new IT products and services such as Phone Banking Service, Corporate Cash Management System, Payment Messaging Solution and Global Treasury etc., to increase customer convenience and also to reduce transaction cost.
Second Quarter 2010 Results (ended June 30, 2010)
During the second quarter of 2010, Bank of Baroda reported revenue of Rs. 4,726.96 crore, compared to Rs. 4,353.84 crore in the second quarter of 2009. Interest income for the quarter was Rs. 2,868.9 crore, compared to Rs. 2,608.89 crore in the prior-year period. Bank of Baroda reported gross profit of Rs. 1,527.87 crore, compared to Rs. 1,547.33 crore in the second quarter of 2009. Likewise, EPS was reported to be Rs. 23.50 compared to Rs. 24.79 a year ago.
|Metric (in Billions INR)||2005||2006||2007||2008||2009|
|Total Interest Income||64.31||71.00||92.13||118.13||150.92|
|Non - Interest Income||13.05||11.92||13.82||20.51||27.58|
|Cost Income ratio||46.24%||55.43%||51.30%||50.89%||45.38%|
|Credit - Deposit Ratio||55.82%||67.15%||74.35%||77.32%||82.36%|
|Return on Average Assets (%)||0.71%||0.73%||0.72%||0.80%||0.98%|
Fiscal 2009 Results
In FY2009, Total revenue grew by 28.7% to Rs.178.55 billion from Rs. 138.64 billion in FY2008, led by 33.10% and 34.50% growth in its total interest and Non-Interest Income respectively. In the period from 2005-09, the bank grew by 28% every year, and interest income growth outpaced the non interest income growth. During 2008-09, Non-Interest income growth was largely driven by strong growth of 39.50% in fees income. Despite the healthy growth in advances, the bank was able to maintain current account and savings account (CASA) at 34.90% reduced marginally from 35.80% in FY2008, which is still the smallest fall compared to its peers. The highest low-cost deposit among public sector banks helped the Bank achieve a net interest margin of 2.91% compared to 2.90% in FY2008.
Where other large banks (Canara Bank, Punjab National Bank) achieved less than 30% growth in advances , Bank of Baroda’s advances portfolio grew 34.90% to Rs.1439.86 billion, which was the highest growth recorded in FY2009. Overseas loan book have grown by 56% largely due to rupee depreciation during the year. Even in the financial crisis, the bank was able to increase its return on assets to 1.09%, from 0.89% propelled by 34.90% increase in total advances. Due to its diversified loans portfolio and better asset management skills, the Bank reduced its Non-Performing Assets (NPAs) to 0.44% from 0.59%, which was lowest among its peers like State Bank of India and Punjab National Bank.
In FY09, the Bank reported a net profit of Rs 22.75 billion driven by strong growth in advances, higher treasury, and loan provisioning. The expenses on salaries and other operating heads grew by 21.8% and 10.9% respectively in the fourth quarter of 2009. The Bank managed expenses growth at lesser rates than growth in interest and other incomes which is one of the most important reasons behind its high profit growth.
Under Wholesale Banking, corporate customers are identified as Large and Mid corporate; those having annual sales turnover of over Rs. 5 billion are classified as Large Corporate and those with annual sales turnover from Rs. 1 billion to 5 billion are classified as Mid Corporate.  For the fiscal year ended 2009, the Bank’s wholesale revenue grew by over 24% to Rs. 52.48 billion from Rs. 41.57 billion in 2008, constituting 29.4% of its total revenue. While operating profit from corporate banking rose by 382% to Rs. 8.45 billion in FY2009 from Rs 1.75 billion in FY2008.
During the year, the bank launched a number of Credit Campaigns for Direct Agriculture and SME sectors, organized credit camps at the branch level and provided credit facilities to borrowing customers in the form of customized products and services. The Bank has identified 350 trust branches with potential for agriculture lending and has been pursuing the Business Facilitator Model for canvassing agriculture loans.
In FY2009, Retail Banking revenue of the bank increased by 36% to Rs. 53.83 billion from Rs. 39.60 billion in FY2008, driven by modest growth in its housing loans, auto loans and personal loans. In FY2009, the Bank posted a retail credit growth of 16.3% year-on-year to reach Rs. 196.51 billion and formed 17.9% of total gross domestic credit. The Bank’s Home Loans increased by Rs 983.67 crore during the year, registering a growth of 13.51% over March, 2008. The advance against mortgages, education loans and car loans grew by 31.47%, 32.67% and 51.24% respectively during the year ended March 2009.
During the year 2008-2009, the bank took many initiatives by introducing new products both on assets, and liability sides such as Loan for Earnest Money Deposit, Baroda Additional Assured Advance to NRIs, and Baroda Bachat Mitra. In order to mobilize fresh retail business, the Bank adopted an aggressive market strategy and launched Retail Loan Festival Campaigns offering various concessions during the campaign period. MoUs were signed with a number of car manufacturing companies, and tie-up arrangements made for providing Life Insurance Cover to Education Loan and Home Loan customers sanctioned under special packages.
In FY2009, Treasury revenue of the bank increased 24.20% to Rs. 44.42 billion from Rs. 35.76 billion recorded in FY2008. The financial year 2008-09 experienced huge volatility in financial markets across various asset classes and the bank’s operating profit rose by 29% to Rs. 10.19 billion, from Rs. 7.89 billion in FY2008. The bank has an integrated treasury, which covers both domestic and global markets and funds the balance sheet across various locations.
In order to strengthen its non-interest income, the bank has been consistently focusing on expanding its financial services. At present it provides NRI, Wealth Management and other services. Revenue from other banking operations increased by 27.90% to Rs. 27.76 billion in FY2009, from Rs. 21.70 billion recorded in FY2008, while operating profit grew by 18% y-o-y to Rs. Rs. 17.69, from Rs. 15.0 billion in 2008. 
Bank of Baroda is one of the few banks which have a significant international presence. As of March 2009, the bank’s 74 international branches covered 25 countries and contributed 22.55% to the Bank’s global business. During the year 2008-09, the Total Business (Deposits + Advances) of the Bank’s overseas branches registered a growth of 46.23%,Customer Deposits increased by 56.03%, Total Deposits by 38.68% and Advances by 56.22%. In spite of the huge requirement of provisioning due to ‘Mark to Market’ of Investments, Net Profit from International operations during the year increased by 23.17% (year-over-year), Gross NPAs came down to 0.51% of total advances against 0.55% in the previous year, and Net NPAs were maintained at almost zero.
|Bank of Baroda share holding pattern |
|Government of India||53.80%|
|Foreign Institutional Investors||14.2%|
Since October 2008, (when the global financial turmoil began), PSU lenders have cut loan rates faster than deposit rates, thus squeezing their net interest margins (the difference between interest earned on loans and interest paid on deposits). Between October-June 2009, Public sector banks saw a cut in lending and deposit rates between 100-250 basis points, and 50-200 basis points respectively compared to private lenders who reduced their lending rates by only about 50 basis points and deposit rates by about 75 basis points. During 2008-09, Bank of Baroda has performed efficiently and saw its NIM improved marginally to 2.91% from 2.90%, due to smallest fall in CASA ( falling marginally to 34.8%, from 35.10% in 2008) and strong global presence. Also in order to ease its cost of funds, Bank of Baroda had retired high-cost deposits worth nearly Rs 35 billion in the last six months which has helped the Bank in achieving better than industry's NIM. Also, in order to give a boost to the Indian economy, the Government has been exerting continuous pressure on public sector banks to cut interest rates further which will act as a spur to loan growth, but this will also put additional pressure on the Banks’ profitability due to narrowing NIM and growing uncertainty in NPA.
Current Accounts and Savings Accounts, or low cost deposits are the cheapest source of funds for banks, and a higher share of CASA helps banks to reduce their interest outlays. With a significant expansion of their branch and ATM network, strong technology infrastructure, superior range of products, and high quality retail and wholesale banking services and strong presence in rural and semi-urban ares (55% of the Bank's total branches), during 2008-09 Bank of Baroda saw its CASA falling marginally to 34.8%, from 35.10% in 2008, the smallest fall among public sector banks. Thus its cost of funds increased just 6bps to 5.81% during 2008-09. This has helped the Bank in increasing its Profitability and also during the year the Bank moved up to third position from fourth in 2008 in terms of net profit.When compared to its top peers, State Bank of India and Punjab National bank saw their CASA reducing by 4% each.
As of March'09, Bank of Baroda had the lowest NPA's (0.31%) among the five top banks and therefore has been expanding loan activities aggressively. During 2008-2009, its advances and deposits grew by 34.94% and 29.59% respectively, well above the industry average. The Bank has been consistently focusing on marketing its activities by launching various new products based on customers’ demands. Moreover, during 2008-2009 the bank achieved a milestone by moving up to the 3rd position from 4th due to its aggressive business activities.In the past, Private and foreign banks advances growth has outpaced the growth of PSB's. Deposits of private sector banks grew at a CAGR of 26% during FY04 – FY08, as against an overall CAGR growth of 20.5% by all SCBs. However, in the recent credit crunch PSU banks have been lending aggressively due to lower NPA in their books. As of March 27, 2009, public-sector banks' deposits grew by 24.1% year-on-year versus private-sector banks deposit growth - 8%, and foreign banks - 7.8%. A year earlier, public-sector banks' deposit growth was 22.9%, private-sector banks' 19.9%, and foreign banks' 29.1%. In the same period, PSU banks advances grew by 20.4%, compared to private-sector banks with 10.9% growth, and foreign banks at just 4% growth. The corresponding figures for 2008 were 22.5%, 19.9% and 28.5%, respectively.
As of 31st March 2008, total advances was estimated at Rs. 21,815.50 billions. Bank of Baroda with total advances of Rs. 1,067.10 billion had a market share of 4.89%.
|Metrics/Company (figures in Billions INR)||Axis Bank||ICICI Bank||HDFC Bank||State Bank of India||Punjab National Bank||Bank of India||Bank of Baroda||Indian Bank||Canara Bank|
|Net Revenue (net of interest exp.)||43.8||161.83||75.11||264.2||75.32||85.51||59.62||30.60||58.46|
|Net Interest Income||25.85||73.04||52.3||170.21||55.34||54.99||39.11||20.54||35.38|
|Revenue Growth from 2007||71.50%||45.18%||50.70%||12.43%||8.49%||70.92%||20.21%||19.08%||5.50%|
|Net Profit Margin||24.45%||25.69%||21.17%||25.47%||20.46%||35.17%||24.07%||32.98%||26.77%|
|Total Operating Income||22.26||72.43||37.65||138.11||40.06||54.57||30.27||16.59||29.59|
|Other Key Industry Metrics|
|capital Adequacy Ratio||13.73%||14.92%||13.60%||13.47%||12.96%||12.95%||12.91%||12.74%||13.25%|
|Return on Assets||1.24%||1.10%||1.32%||1.01%||1.15%||1.25%||0.89%||1.64%||0.92%|