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Reports merged financials; Balance sheet strengthens but concerns remain
Bank of Baroda (BoB) has published its balance sheet as at 1st Apr’19, which reflects the impact of its merger with Vijaya Bank and Dena Bank.
* Dena Bank/Vijaya Bank reserves were written down by ~86%/~24% from 3QFY19 levels,
* CET-1 ratio of the combined entity has declined to 8.6% as against 10.4% for BoB in FY19,
* Net NPA ratio of the combined entity increased 32bp to ~3.7% from ~3.3% for BoB in FY19,
* Calculated PCR declined 167bp to ~66% for the merged entity while PCR (incl. tech w/off) stood healthy at ~78%.
* Reserves of Dena Bank/Vijaya Bank marked down by 86%/24%:
In the opening balance sheet of the merged entity, reserves of Dena Bank/Vijaya Bank have been marked down by ~86%/~24%, largely due to higher provisions created on NPLs and harmonization of accounting policies. Further, the CET1/Tier-1 ratio of the combined entity stood at 8.6%/9.7%, indicating the need for a capital raise in the near future. We expect BoB to be one of the key beneficiaries of any potential capital infusion by the government in PSBs during FY20E.
* Merged entity the third largest bank with advances’ market share at 6.7%:
Post the merger with Vijaya Bank and Dena Bank, BOB has become the third largest bank in the country in terms of advances. The loan/deposit market share of the merged entity stands at 6.7%/7.3% v/s 4.8%/5.1% pre-merger. According to the latest available data, retail/Agri/MSME/wholesale book constitutes ~24%/13%/13%/47% of the combined loan book (Exhibit 4). Also, on the liability side, CASA ratio for the merged entity has declined by ~327bp to 37% as against ~40% for BoB in 4QFY19 (Exhibit 5).
* Geographical reach to strengthen; employee base increases 51% for merged BoB:
The combined entity will have branch/employee strength of ~9, 491/84,064, an increase of 71%/51% over FY19 levels. The widespread branch network will help BoB to strengthen its presence in the western, southern and north-eastern regions.
* NNPA ratio post-merger higher by 32bp; PCR levels fairly healthy due to conservative provisioning policies:
Post amalgamation, absolute NNPA of the combined entity increased to ~INR238b v/s ~INR156b for the standalone entity; NNPA ratio increased 32bp to ~3.7% v/s ~3.3% (standalone). Provision coverage of the combined entity stood at 66% (v/s 67% standalone), while the PCR, incl. technical w/off stood at a healthy 78%.
* Exposure to stressed groups:
* ILFS: Exposure of Dena Bank and Vijaya Bank stands at INR12.2b while exposure of BoB stands at INR45b. Thus, total exposure of the merged entity to IL&FS is INR57.9b; of this, INR22b is classified as NPA (25% provisions held on the same).
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