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    Bank of Baroda

    BANKBARODA
    Financial Services·5 Feb 2025
    Management Summary

    Bank of Baroda reported a strong Q3 FY25, showcasing robust growth in business volume, advances, and deposits, coupled with significant improvements in asset quality. Operating profit and profit after tax demonstrated healthy YoY growth, and the bank maintained its RoA above 1%. While Net Interest Margin faced pressure from rising cost of funds, management is focused on retailization, digital transformation, and prudent capital allocation to sustain profitability and growth, with a particular emphasis on managing personal loan asset quality.

    Highlights

    10

    • Total business volume stood at 25.65 lakh crores as of 31st December 2024.

    • Global advances grew by 11.8% YoY, with domestic advances up 11.9% and international up 11.2%.

    • Retail advances showed strong organic growth of 20%, with personal loans growing 24% and auto loans 21%.

    • Operating profit for Q3 FY25 was 7,664 crore, marking a 9.3% YoY growth.

    • Profit after tax for Q3 FY25 reached 4,837 crores, a 5.6% YoY increase.

    • RoA for Q3 FY25 was 1.15%, marking the 10th consecutive quarter above 1%.

    • Asset quality improved significantly with Gross NPA at 2.43% (down 65 bps YoY) and Net NPA at 0.59% (down from 0.7%).

    • Provision Coverage Ratio remained robust at 93.51%.

    • Slippage ratio for Q3 was 0.90%, well within the guidance of 1-1.25%, and credit cost improved to 0.30%.

    • CRAR (including current year profit) stood strong at 17.34%, with CET 1 at 13.77%.

    Concerns

    3

    • Net Interest Margin (NIM) for the nine months ended Dec 31, 2024, compressed to 3.08% from 3.14%, primarily due to an increase in the cost of deposits from 4.85% to 5.09%.

    • Personal loan GNPA increased from 3.16% to 3.9% for the nine months period, despite management's efforts to moderate growth and improve underwriting.

    • The bank experienced a 300-350 crore impact on interest income this quarter due to the absence of a one-off recovery from written-off accounts seen in the previous quarter.

    What Changed3

    vs Q3 FY25

    Guidance items4 → 10 (+6)Risks discussed4 → 3 (-1)Q&A highlights4 → 7 (+3)
    Key financials

    Metrics

    14

    Periods

    3

    Headline

    9
    • Total Business Volume
      ₹25.65L Cr
    • Global Advances Growth
      11.8%
    • Total Deposit Growth
      11.8%
    • Return on Asset (RoA)
      1.1%
    • Gross NPA
      2.4%
      YoY-0.7%

    Q3

    4
    • Operating Profit
      ₹7,664 Cr
      YoY+9.3%
    • Profit After Tax
      ₹4,837 Cr
      YoY+5.6%
    • Slippage Ratio
      0.9%
    • Credit Cost
      0.3%

    9M

    1
    • Net Interest Margin (NIM)
      3.1%

    Segment breakdown

    Domestic Advances
    11.9% Growth
    International Advances
    11.2% Growth
    Retail Advances
    20% Growth
    Agriculture Advances
    13% Growth
    MSME Advances
    14.0% Growth
    Corporate Advances
    7.0% Growth
    Mortgage
    16.3% Growth
    Home Loan
    16.6% Growth
    Education Loan
    17% Growth
    Auto Loan
    21% Growth
    Personal Loan
    24% Growth
    RAM (Retail, Agri, MSME)
    59.9% Percentage of Book
    List

    Capital allocation

    1
    high confidence
    CategoryHeadline
    Liquidity

    Liquidity disclosed

    The bank reported a Liquidity Coverage Ratio (LCR) of 130%, which is considered strong and comfortable, against a normal comfort range of 115-120%. CRAR (including current year profit) is 17.34% and CET 1 (including current year profit) is 13.77%.

    Guidance & targets

    10
    CategoryTargetPriority
    Credit Growth
    Deposit Growth
    9-11%
    		High
    Credit Growth
    Advanced Growth
    11-13%
    		High
    Credit Growth
    Corporate Credit Growth
    ~10%
    		Medium
    Credit Growth
    Personal Loan Growth
    25-30%
    		High
    Profitability
    Net Interest Margin (NIM)
    3-3.10% (3.05 +/- 5 bps)
    		High
    Profitability
    Return on Asset (RoA)
    >1%
    		High
    Asset Quality
    Slippage Ratio
    1-1.25%
    		High
    Asset Quality
    Credit Cost
    <0.75%
    		High
    Portfolio Mix
    Retail to Corporate Mix
    65% retail, 35% corporate
    		Medium
    Operational Efficiency
    Tech Expenditure as % of Operating Profit
    12-15%
    		High

    NIM trajectory

    Next quarter
    Current3.08% (9M FY25)
    Target3-3.10% (Full Year FY25 guidance)

    Why it matters

    NIM is a key profitability driver, and its trajectory will indicate the effectiveness of cost of funds management and impact of potential RBI rate actions.

    Mr. Debadatta Chand: So, going forward⏳, our operating guidance for the margin for the full year is 3 to 3.10, that means 3.05 +/- 5 bps with an upside towards the upper band...

    How to verify

    key_financials.metrics[label='Net Interest Margin (NIM) (9M)']

    Risks & concerns

    3
    RiskSeverity

    NIM compression due to elevated cost of deposits

    Cost of deposit increased from 4.85% to 5.09% for 9M, leading to NIM compression to 3.08%. — Management acknowledged

    medium

    Rising personal loan GNPA

    Personal loan GNPA increased from 3.16% to 3.9% for 9M, though management considers it manageable given the small book size and overall benign slippage. — Analyst acknowledged

    medium

    Tight liquidity in the banking industry

    The banking industry faces tight liquidity, impacting deposit growth and cost of funds, which the bank is managing through various strategies including market borrowings. — Management acknowledged

    medium

    Q&A highlights

    7

    “Mr. Debadatta Chand: Last quarter it was one off, otherwise the normal rate is the level that we have I mean this quarter the number is. ... So, the fall in the recovery from written off vis-a vis the last quarter, I'm talking the Q3 over Q2, it is also supported this time by the higher treasury income and also one element of the interest on the tax refund. So, that's clearly negating bit of the fall in that manner.”

    Clarifies the impact of a one-time event on interest income and explains the normalized recovery run rate.

    asked by Mr. Rakesh Kumar

    2 min read6 chapters

    Detailed Narrative

    01

    Robust Business Growth and Strategic Retailization

    Bank of Baroda reported a total business volume of 25.65 lakh crores as of December 31, 2024. Global advances grew by 11.8% YoY, with domestic advances up 11.9% and international advances up 11.2%. The bank continues its strategic focus on retailization, with the Retail, Agri, and MSME (RAM) book increasing by 200 bps to 59.9% of the total book. Retail advances grew organically by 20%, driven by personal loans (24% growth) and auto loans (21% growth).

    02

    Improved Asset Quality and Prudent Provisioning

    Asset quality showed significant improvement, with Gross NPA reducing by 65 bps YoY to 2.43% and Net NPA decreasing to 0.59% from 0.7%. The Provision Coverage Ratio remained robust at 93.51%. The slippage ratio for Q3 FY25 was 0.90%, well within the bank's guidance of 1-1.25%, and credit cost improved to 0.30%. Management noted that fresh slippages for the full quarter were 2500 crores, which they consider insignificant.

    03

    NIM Compression Amidst Rising Cost of Funds

    Net Interest Margin (NIM) for the nine months ended December 31, 2024, compressed to 3.08% from 3.14% in the previous period. This was primarily attributed to an increase in the cost of deposits, which rose from 4.85% to 5.09%. Management adjusted its full-year NIM guidance to 3-3.10% (3.05 +/- 5 bps) with an upward bias, acknowledging the impact of penal interest and charges, which reduced NIM by 5-6 bps.

    04

    Consistent Profitability and Capital Adequacy

    The bank maintained strong profitability, with operating profit for Q3 FY25 growing 9.3% YoY to 7,664 crore, and profit after tax increasing 5.6% YoY to 4,837 crores. Return on Asset (RoA) remained above 1% for the 10th consecutive quarter, standing at 1.15% for Q3 FY25 and 1.17% for the nine-month period. Capital adequacy remained robust, with CRAR (including current year profit) at 17.34% and CET 1 at 13.77%, providing ample room for future growth.

    05

    Deposit Franchise Strength and Liquidity Management

    Total deposits grew by 11.8% YoY, with CASA growing by 6.5% YoY, outperforming peer banks and maintaining a CASA ratio of around 40%. The CD ratio stood at 84.24%. The bank's Liquidity Coverage Ratio (LCR) was 130%, well above the regulatory requirement and its normal comfort range of 115-120%. Management expressed confidence in managing liquidity and deposit costs, anticipating positive impacts from potential RBI rate actions.

    06

    Digital Transformation and Operational Efficiency

    Digital transformation remains a key focus, with the bank winning awards for AI/ML adoption and digital technology. The bank allocates 12-15% of its operating profit towards tech expenditure, including both CapEx and operating expenses. Initiatives like the Systematic Deposit Plan (SDP) have seen good traction, mobilizing over 3,000 crores, reflecting successful digital product adoption and service standard improvements.

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