Bank of Baroda has set an ambitious target to grow fee-based income from 7–8% to 11–12% of total income. Debadatta Chand, MD & CEO, Bank of Baroda told Mahesh Nayak about the bank’s strategy to scale its corporate loan book, deepen retail, agri, MSME penetration and outlined plans to list key subsidiaries. Excerpts:
What is the bank’s stance on PSU mergers?
I view mergers as policy-driven decisions, and based on our experience, past mergers have been successful with smooth integration processes. I don’t see integration as a challenge, especially given our institutional capabilities. India needs large, resilient banks to compete globally, and I am fully aligned with that vision of building scale and strength through strategic consolidation.
What’s driving the bank’s optimism for corporate loan growth in the second half of the year?
Our corporate loan book grew around 10–11% last year, and while Q1 and Q2 were relatively muted, we saw a sequential uptick of 8% in Q2. That momentum, combined with the traditionally strong Q3 and Q4, gives us confidence. We are seeing strong traction in sectors like renewables, data centres, and roads. Seasonal working capital demand also picks up in the latter half, especially post-festive season, which supports our outlook.
Are you seeing signs of private capex picking up as well?
Yes, to some extent. Capacity utilisation has reached levels where expansion becomes necessary. While many corporates are still using internal accruals or tapping bond markets, we expect stronger private capex demand in Q3 and Q4. If you include credit substitutes like investments in bonds, the overall credit environment is quite robust.
What’s the current pipeline for corporate sanctions and disbursements?
We have about Rs 45,000 crore sanctioned and pending disbursement, with another Rs 20,000–25,000 crore under process. That gives us a pipeline of roughly Rs 65,000 crore, which is significant against our Rs 4 lakh crore corporate book.
You’ve set an ambitious target to increase RAM (Retail, Agri, MSME) share from 62% to 65%. How do you plan to achieve that?
Retail is our largest RAM segment and has been growing at 18–20%. MSME and Agri are also seeing strong growth, 14% and 17%, respectively. We expect RAM to grow at 16% this year, outpacing corporate growth. Our wide branch network and focus on secured retail products like home and auto loans are key enablers. Home loans remain a stronghold, growing at 17.5%, and auto loans are over 18%. We are also scaling up gold loans and education loans. Personal loans are being moderated for now as we strengthen our underwriting models.
Is the cautious approach to unsecured lending a strategic shift?
It’s more about strengthening our risk framework. We have seen some stress in personal loans industry wide. Once we are confident in our revised underwriting models, we will scale up again. Meanwhile, our credit card subsidiary is growing aggressively and aims to be among the top 10.
What’s driving MSME growth?
Several initiatives. We have scaled up lending in commercial vehicles and commercial mining equipment and launched a cash management service tailored for MSMEs. This helps us understand their cash flows better and offer customised products. Our MSME book grew 13.9% YoY and 6.5% sequentially this quarter.
How is the bank approaching acquisition financing?
We see a tremendous opportunity in M&A financing, particularly through our international subsidiaries and branches in global markets where this is already a well-established product. With a Rs 4 lakh crore domestic corporate book and a Rs 2.2 lakh crore international book, we are well-positioned to leverage our scale and deep expertise in structuring and understanding these complex financial solutions to drive growth and value across borders.
What is the expected impact of ECL implementation?
We expect the implementation of expected credit loss (ECL) to have a net impact of 75 basis points over five years, factoring in an initial 125 bps hit that will be partially offset by 60–70 bps from the new Basel 3 guidelines. Recurring impact will likely be 20–25 bps higher annual credit cost due to provisioning for Stage 2 assets. To prepare, we have set a credit cost guidance below 0.75%—currently at 0.29%—and built Rs 1,000 crore in floating provisions. Additionally, we plan to raise Rs 8,500 crore in equity to strengthen our capital position and ensure a smooth transition.
Are there plans to list more subsidiaries?
Yes. IndiaFirst Life Insurance is already on track for an IPO within 9–12 months. For others, we are evaluating market conditions. The idea is to scale them up significantly before listing. We have communicated to all boards that growth is imperative. Our strategy is to significantly scale subsidiaries operations, with the goal of potentially doubling their contribution over the next few years.
What is the bank’s strategy for Loan against shares?
Although it’s currently a small book, we are refocusing on it as a strategic part of our capital market division. Have instructed the department to develop a revised business plan that reflects the strength of the market and the increased policy limits for Loan Against Securities (LAS). I see this as a promising opportunity to expand our offerings in secured personal loans and drive growth in a segment that’s ripe for scale.
Can you take us through your key digital transformation initiatives?
We have digitised our loan processing systems across retail, MSME, and corporate. This has improved turnaround times and institutional memory. In terms of financial efficiency, we aim to reduce our cost-to-income ratio from around 48% to sustain Return on Assets (ROA) despite margin pressures. We are also piloting 10 next-gen branches with a hybrid digital-physical experience and a virtual branch assistant named Aditi. These innovations aim to bring footfalls back to branches while enhancing customer experience. Plan is to expand it to 50 such branches within a year. We have also done significant investment in cybersecurity, including the creation of a new company, Baroda Sun Technology Limited, to focus solely on emerging technology and security.
What is the outlook for deposit pricing?
I believe the lowest point in deposit pricing is behind us, and I don’t expect any further cuts going forward. On the asset side, most pricing has already reset, except for MCLR-linked books, while corporate lending rates continue to be influenced by movements in the bond markets. As for our net interest margin (NIM), I anticipate some fluctuation in Q3, but Q4 should remain stable. For the full year, I am guiding a NIM range of 2.85–3%.
What frameworks are in place for risk management?
We rely on the Risk-Adjusted Return on Capital (RALOC) framework to evaluate performance more effectively and are developing a product profitability engine to optimise capital allocation and drive smarter, data-backed decisions across the portfolio.
Any update on Bob World?
We are expecting to roll out Bob World App Version 2 by January or February next year. It will feature a completely redesigned user experience with enhanced compliance measures, built on key learnings from past incidents to ensure greater reliability, security, and customer satisfaction.
What are the bank’s concerns regarding geopolitical instability and cyber risk?
The full impact of current geopolitical tensions is still unfolding, and we will be closely monitoring developments over the next one to two quarters to assess any potential risks or disruptions. On the cybersecurity front, we have partnered with SBI to launch a new entity called DPIP, which is focused on addressing ecosystem-wide threats and strengthening our collective defence against emerging cyber risks.
What is the bank’s exposure to microfinance?
Currently, our exposure to the microfinance sector stands at around Rs 4,000-5,000 crore, which is relatively small. However, we are optimistic about the outlook, asset quality remains strong, and I believe the worst is behind us. This gives us confidence to consider a potential redesign of our exposure strategy, aiming to tap into new growth opportunities while maintaining prudent risk management.