Bank of Baroda slides 3.5% as Moody's downgrades baseline credit assessment

Funding and liquidity, however, remain key credit strengths of the public sector bank
Shares of Bank of Baroda slipped 3.5 per cent to Rs 70.70 on the BSE on Thursday after global rating agency Moody's downgraded the bank's baseline credit assessment (BCA) from “ba2” to “ba3” on weakening asset quality and further risks from the deteriorating operating environment in India.

At 10:31 am, the stock was trading 1.64 per cent lower at Rs 72.10. In comparison, the headline S&P BSE Sensex was ruling 0.35 per cent higher at 38,540.12. Over 1.18 crore shares have changed hands on the counter on NSE and BSE till the time of writing of this report.

The agency cited the lender's deteriorating asset quality as a threat to its profitability and capital.

"Asset quality in BoB's micro, small and medium enterprises and agriculture portfolio, which has deteriorated, will continue to weaken further. Lower economic growth in India is negative for these sectors and will drive continued weakness in these segments," the agency added. READ HERE

Moody's, however, affirmed the public sector lender's domestic and foreign bank long-term and short-term deposit ratings of Baa3, stable/P-3. It also affirmed Bank of Baroda (London)'s foreign currency senior unsecured rating of Baa3, stable. Two public sector banks – Dena Bank and Vijaya Bank merged with Bank of Baroda from April 01, 2019.

Funding and liquidity remain key credit strengths of the public sector bank. Similar to other PSU lenders, BoB's funding franchise benefits from government ownership, Moody’s said. 

In the December quarter of FY20, the bank's pre-tax profit rose 34.61 per cent to Rs 5,748 crore, against Rs 4,270 crore reported in Q3FY19. But, the bank posted a net loss of Rs 1,407 crore in the quarter, compared with net profit of Rs 436 crore for Q3FY19, mainly on the back of higher provisioning.

The bank had to make higher provisions for non-performing assets (NPAs) for accounts which the Reserve Bank of India flagged in annual financial inspection for FY19. It reported divergence of Rs 5,250 crore in NPAs, pushing up the provisions for bad loans to Rs 6,621 crore, a rise of 47 per cent over Rs 4,505 crore in Q3FY19. The provisions coverage ratio of NPAs stood at 77.77 per cent. Gross NPA stood at Rs 73,140 crore (10.91 per cent), while the net NPA ratio was 4.75 per cent for the quarter.

So far in the calendar year 2020, the bank has underperformed the headline index. Till Wednesday, Bank of Baroda has tumbled 28 per cent at the bourses, as against a 7 per cent decline in the S&P BSE Sensex. 

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