Govt. to infuse fresh capital in Bank of Baroda

According to the media reports, the Govt. of India has agreed to a capital infusion of Rs 775 cr into Bank of Baroda (BOB), which will increase its stake in the bank by 97 bps to 58%. Previously, in Mar 2011, the govt. had infused capital of approximately Rs 2675 cr in the bank, increasing its stake from 53.81% to 57.03%. The govt's move is definitely good for the bank, as it could easily give credit and would also help in meeting its capital requirements.

Having said this, the govt. will face issues due to this capital infusion, as it is already running on huge deficits. As a matter of fact, the govt. is already facing serious pressure when it comes on managing its revenues and expenditure. The cost of borrowing (imports) has been rising with higher crude prices and rupee depreciation. This has lead to the widening of trade balances, and the govt. is running into huge deficits. This is evident from the fact that for the period Apr-Oct 2011 (7 months), the fiscal deficit stood as high as 74.4% of the budgeted estimate for FY12.

PSU heavyweight, SBI, has also been in need of capital for the past couple of months. However, SBI’s Rights Issue does not seem to be appropriate at this time. This is because the stock has plunged 42% on a YTD basis, and it is currently among the worst-performing scrips. On the other hand, the move is definitely good for BOB, as the bank can use the funds for its credit growth and can also utilise them for its capital requirement.

As of Sep 30, 2011, BOB had a decent Capital Adequacy Ratio (CAR) of 12.73% while the Tier 1 CAR stood at 8.82%. The bank's NIM improved even in a rising interest rate environment, which is commendable. The NPAs deteriorated to some extent, but were still among the best in the industry. The following are the key indicators of the bank's performance: