Bank of Baroda (BoB) is the second largest bank in the country with over 2,500 branches. It accounts for 6.5 per cent and 6.3 per cent of the banking systems deposits and advances respectively. The large number of rural branches in the economically well-off states of Gujarat, Maharashtra and the south will enable it to mobilise low cost deposits of higher maturity. Over 33 per cent of its deposits have a maturity longer than three years.
BoB is the most efficient of the nationalised banks. Its expense ratio is 38.65 per cent compared with State Bank of Indias 54.2 per cent, and is lowest amongst nationalised banks.
BoB will have a better balance-sheet growth than SBI. While SBIs is estimated to be 9.2 per cent, BoBs is expected to grow at 10.9 per cent in fiscal 1997. Deposits are expected to increase by 11.1 per cent and 14.8 per cent in fiscal 1997 and 1998 respectively. Advances are expected to grow at 8.2 per cent and 15.8 per cent in the same years.
The net interest income is expected to increase from Rs 1280.55 crore in FY96 to Rs 1337.32 crore, Rs 1523.5 crore and Rs 1747.9 crore in FY97, FY98 and FY99 respectively.
The gross NPA and net NPA is expected to drop to 10 per cent, 8.5 per cent and 6.8 per cent and 7.5 per cent, 6.5 per cent and five per cent in FY97, FY98 and FY99 respectively.
The RONW and ROA will increase respectively from 12.33 per cent and 0.62 per cent in FY96 to 12.78 and 0.73 per cent in FY97. In FY98 and FY99, the RONW and ROA are expected to increase to 15.47 per cent and 16.05 per cent and 0.92 per cent and 1.03 per cent respectively.
Cost of deposits will rise: In FY97, deposits are expected to increase by 11.1 per cent. Term and savings deposits are expected to climb by 12 per cent and demand deposits by five per cent. The cost of deposits (CoD) is expected to increase from 7.52 per cent in FY96 to 7.91 per cent, 7.98 per cent and 8.37 in FY97, FY98 and FY99. The increase in the CoD in FY97 will be due to the high interest rates prevailing in the 1H and the higher percentage of term deposits. The CoD is expected to increase in the coming years due to a higher percentage of term deposits and increased competition in the retail market, which will force banks to hike interest rates.
Credit growth, which was 8.2 per cent in FY97, is expected to pick up to 15.85 per cent and 14.7 per cent in FY98 and FY99 respectively, as industrial activity picks up.
EPS will rise considerably: The yield on advances (YOA) which stood at 14.27 per cent in FY96, is expected to increase marginally to 14.32 per cent in FY97. We expect the YOA to dip marginally to 14.29 per cent in FY98 due to lower interest rates, but increase to 15.4 per cent in FY99. The decline in YOA combined with an increase in COD will result in a drop in spreads to 6.41 per cent and 6.31 per cent in FY97 and FY98 respectively. It is expected to increase to 7.02 per cent in FY99.
Investments are expected to increase from Rs 9,590crore in FY96 to Rs 14,690 crore in FY99. Most of this would be in government securities. However, we expect the proportion invested in shares, bonds and debentures to increase due to higher returns.
The total interest earned and total income is expected have a CAGR of 13.5 per cent and 13.45 per cent in the next three years. The net interest income (NII) will have a lower CAGR of 10.93 per cent due to lower spreads. The gross profits and net profit is expected to have a CAGR of 11.8 per cent and 32.7 per cent respectively in the next three years.
EPS is expected to increase from Rs 3.54 in FY96 to Rs 8.95, Rs 13.53 and Rs 16.11 in FY97, FY98 and FY99 respectively.
