Bank of Baroda (BoB) and Bank of India (BoI) are expected to post a net profit in the region of Rs 350-380 crore and Rs 410-460 crore, respectively, without taking into account the write-back of excess provisions. The earnings per share on a fully diluted basis in case of BoB is expected to be Rs 13.5 and for BoI it is expected to be Rs 6.9.
Last year, BoB and BoI posted a net profit of Rs 318 crore and Rs 370 crore, respectively.
Analyst said that the year 1997-98 has been a bad year for the banking sector as there was a very modest rise in credit leading to high non performing assets and squeeze on spreads earned by banks. Besides, the foreign exchange and domestic markets too were volatile leading to an impact on banks bottomline.
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According to an analyst with Kotak Securities, in case the write back of excess provisions is not taken into account, BoB is expected to post a net profit of Rs 362 crore, while BoI is estimated to post a net profit of Rs 415 crore.
An analyst with a research outfit promoted by a financial institution has estimated BoB to post a net profit of Rs 380 crore and BoI to post Rs 454 crore before accounting for write backs. An analyst with a foreign institutional investor said that they expect BoB and BoI to post a net profit of Rs 380 crore - Rs 385 crore and Rs 440 - Rs 461 crore, respectively.
Analyst said if these banks do not mark to market 100 per cent of their investment portfolio, they would be posting higher net profit. Banks are expected to make provisions and write off, a natural tendency to get as much tax shelter possible . Higher levels of provisioning would imply that the net non performing assets would decline.
On the issue of NPA, Kotak Securities is of the view that in case of BoB it should decline from 8.9 per cent to 8.1 per cent, while in case of BoI it would increase to 7.3 per cent from 6.5 per cent. Another analyst expects the NPA of BoB to decline from 8.9 per cent to 7.5 per cent and in case of BoI it would increase to 7 - 7.2 per cent.
In the view of Kotak Securities, the capital adequacy ratio of both BoI and BoB can be expected to be comfortable at 12 per cent. BoI intends to recognise the market risk on government securities and provide capital against it. This would reduce its capital adequacy ratio. Bank of India is in the market raising long term debt as part of Tier-II capital to shore up capital adequacy.
Analysts feel that merger of Bariely Corporation Bank with BoB would have negligible impact on the latter. But they also point out that the merger makes imminent sense rather than for BoB to pump in additional capital.
The spreads of BoB and BoI are expected to exhibit stable behaviour. In case of the former the net interest margin could decline from 3.6 to 3.5, while in case of the latter it could increase from 3.5 to 3.57 per cent. "They have demonstrated the ability to improve interest margin and the trend to continue," said the analyst with Kotak Securities.
Analysts pointed out that they expect the advances of these banks to grow at sub-20 per cent in the current fiscal and said that sustaining a 30 per cent growth in resource flow will not be possible.