Bank of Baroda's quarterly results - here to talk with me is the bank's MD and CEO, Debadatta Chand. Welcome to Business. My first question is about the numbers. Net profit appears to be down about 8%, and non-interest income appears to have fallen about 32%. What is the reason behind that?
Let me explain two things. Sequentially, net profit grew 6%. Year-on-year comparison is distorted because last year's Q2 had a one-off substantial recovery from NCLT. Excluding that, our core net interest income is growing. Non-interest income is normalized. We also made a floating provision of 400 crore for ECL implementation. With that, profitability is good. Asset quality is one of the best quarters. Cost of deposits is among the lowest at 4.91. Return on assets improved. Overall, the bank's fundamentals are strong.
Sir, you spoke about asset quality. Gross NPA is lower, provisioning is lower. Did the bank use specific strategies, and how will you maintain this going forward?
Let me give a few numbers: slippage ratio is 0.91, credit cost 0.26. Fresh slippage is lower than last quarter and the same quarter last year. Cash recovery and upgrades are better. Looking at the four parameters – GNPA, NNPA, slippage ratio, credit cost – the bank has done very well. Based on the book composition and SMA, I think the trend will continue. This is one of the best asset quality quarters.
Sir, best asset quality. Net interest income is up. There is some pressure on margins. Is that due to cost of deposits?
No, we have improved margins. The global NIM is 2.96, compared to 2.91 last quarter. It's in the top quartile. Our CASA ratio is 38.6%, also top quartile. So margin pressure is largely offset by positive NII. Going forward, there will be some margin pressure, but we expect margins to improve in Q4. Our full-year guidance is margins in the range of 2.85 to 3.
And sir, operating profit also saw a decline of around 20%. How did you control costs?
The decline in operating profit is because last year's same quarter had a one-off NCLT recovery. This quarter's operating profit is normalized, with no extra treasury income or recovery from TWO. The current operating profit level of 7,500-8,000 crore is the normalized level. There could be upside from TWO recovery or treasury gains if the 10-year G-Sec yield moves. But the normalized range is 7,500-8,000.
And sir, what is the bank's strategy to further improve treasury income?
Treasury income is market-linked. If interest rates fall, trading profit rises, as seen in the June quarter. Currently, if no large positive movement in the 10-year yield, our treasury income of around 1,000-1,200 crore will persist. But we anticipate possible rate cuts overseas or compression in yields, and potential RBI OMOs, which could increase trading profits. So there is upside. Otherwise, this normalized level will continue for the next two quarters.
Sir, there was concern that retail had many EMI adjustments, repo rates fell, and corporate demand was weak. How do you see demand now and in the coming quarters?
Our corporate demand was 4% and 3% in the past two quarters. But sequential corporate loan growth this quarter is 8%, showing upward momentum. Typically, Q1 and Q2 are muted, while Q3 and Q4 are busy seasons. On a full-year basis, we expect corporate loan book growth of 10-11%, similar to last year. Underlying trends are positive: corporate demand is shifting back to banks, capacity utilization is up, and we have a strong pipeline. So corporate demand growth should be 10-11%.
And sir, which sectors do you see more demand from and where do you see some risk?
Our underwriting standards are good. Working capital demand is rising on capacity utilization. Sector-specific demand is strong in renewables, data centers, and commercial real estate under the LRD scheme. We also see proposals in cement and steel. Demand is coming back, and corporate growth should be stronger in Q3 and Q4, both for us and the system.
And sir, where do you see risk, from which sector?
No risk in corporate right now. But we cannot ignore geopolitical headwinds. In MSMEs, some sectors are impacted by tariffs, but there is no stress today. We are engaging with them and preparing support schemes. The government is also expected to announce schemes. We think we can address those concerns.
And sir, the government has given GST benefits. How much is the banking sector benefiting? And you mentioned tariffs and geopolitical issues. How much stress do you see, since these issues often drag on despite hopes of resolution?
