BANKBARODA - Bank Of Baroda Share Price

Management's outlook for Bank of Baroda indicates a sustainable and stable business model with a focus on organic growth. Key highlights include:

1. Advances Growth: The bank reported a global advances growth of 12.6% year over year (YoY), with domestic advances at 12.4% and international at 13.6%. The retail segment grew robustly at 17.5%. RAM (Retail, Agriculture, MSME) advances increased by 18%.

2. Profitability Metrics: For Q1 FY26, the operating profit reached Rs.8,236 crores, reflecting a 15% YoY growth, while net profit stood at Rs.4,541 crores, marking a 1.9% YoY increase. The return on assets (ROA) and return on equity (ROE) remained strong at 1.03% and 15.05%, respectively.

3. Margins and Deposits: The net interest margin (NIM) was reported at 2.91%. The cost of deposits reduced to 5.05% from 5.12%. Total deposits grew by 9.1%, with international deposits up 14.8% and domestic deposits up 8.1%.

4. Asset Quality: The Asset quality remains robust, with gross non-performing assets (GNPA) improving by 60 bps YoY to 2.28% and net NPA at 0.6%. The provision coverage ratio stood at 93.18%.

5. Capital Position: The bank maintains a strong capital position with a common equity tier-1 (CET-1) ratio of 14.12% and a total capital adequacy ratio (CRAR) of 17.61%.

6. Forward-Looking Guidance: Management maintains an advance growth guidance of 11-13% and deposit growth guidance of 9-11% for FY26. The expectation for corporate loan growth is set at 9-10% for the full year. There is also a focus on increasing the RAM book percentage to 64-65% over the next few years.

7. Concerns and Market Conditions: There are challenges in the corporate lending space due to corporates opting for cheaper bond market financing, leading to a lower growth of corporate loans at 4.2% YoY. The bank is also focusing on improving liability management to enhance CASA ratios.

Overall, Bank of Baroda appears to be on a path of careful growth management, balancing risk while exploring opportunities in retail and MSME sectors amidst a competitive landscape.

Major Questions and Answers from the Earnings Call

Question 1: You alluded to the lower corporate growth. On a quarterly basis, there has been a degrowth. What is happening?

Answer: The lower corporate growth is attributed to two factors: a seasonal effect, as seen similarly last year, and corporates with strong cash flow positions are deleveraging. Furthermore, the bond market offers cheaper borrowing options, reducing reliance on bank loans. Nonetheless, we expect a full-year corporate growth of 9% to 10% based on comparisons with last year.

Question 2: Can you provide more details on the international account that slipped into NPA?

Answer: The account was restructured during the COVID period and subsequently upgraded due to good conduct. However, it showed signs of weakness. Currently, it is in a resolution process called CNC, with a 40% provision booked. We remain hopeful for full recovery as the asset coverage is robust.

Question 3: What are the recovery targets for FY26 and your guidance on credit and deposits?

Answer: We maintain our guidance of 11% to 13% for advances and 9% to 11% for deposits. For recoveries, our target exceeds Rs.10,000 crores for the year, even with a reduced recovery kitty.

Question 4: What impact have the repo rate cuts had on your NIM and profitability?

Answer: NIM is under pressure and stands at 2.91%. The cuts have been passed on quickly to EBLR-linked loans but take longer for MCLR. We expect a recovery in margins in Q3 as deposit repricing occurs, targeting a full-year NIM guidance of 2.85% to 3%.

Question 5: What is your strategy to enhance fee income, which is currently low?

Answer: We are focusing on cash management services, especially in the MSME segment, where we have seen some success. Plans are in place for improved fee structures and to enhance overall fee income performance in upcoming quarters.

Question 6: What is your stance on the MSME segment, considering the growth and potential slippages?

Answer: Our MSME growth was 13.1% YoY, leveraging cash management systems and focusing on key sectors like CV & CME. While some legacy accounts may slip, we are primarily engaged in secured lending, mitigating risk in this area.

Question 7: What is the current status of your digital transformation and how is it impacting costs?

Answer: We are investing around 10% of operating profit in digital initiatives. The hiring plan includes 15,000 employees this year to support operational and relationship roles as we expand our branch network.

Question 8: What are the expectations for your international book, given the recent challenges?

Answer: We monitor our international accounts closely and currently see no significant stress beyond the identified account in CNC. We aim for further improvements in the international portfolio, targeting stronger asset performance.

This summary encapsulates major questions and succinct responses from the recent Bank of Baroda earnings call while maintaining key financial metrics and forward guidance.