The Bank of Baroda management has said underwriting, margins and growth are the key focus areas and the bank will not pursue opportunities that are not profitable or do not meet its underwriting standards. However, the bank will ensure that it does not lose market share. The retail segment is witnessing healthy traction and the bank expects retail loans to account for 35% of total loans in the medium term (v/s 25% now). Although the overall credit growth is likely to moderate in FY24, the bank aims to grow slightly higher than the industry.
Among the business segments, unsecured personal loans have seen a robust 170%+ YoY growth in December 2022 and the segment has potential to grow ~3-4x in the next three-four years, which should significantly boost growth and profitability.
The BoB World app is making a significant contribution to growth and account openings, with a registered customer base of 29 million. Within the agri portfolio, the share of gold loans is increasing, which helps BoB mitigate credit quality challenges and de-risk the book. BoB well placed to capture growth opportunities; overseas loan growth to be comparable to domestic growth Growth in corporate advances is a function of market growth. After Covid, the private investment cycle is yet to start on a broader scale. BoB is well positioned to capitalise on the opportunity; however, it will not be chasing growth by diluting its underwriting standards.
Margins to remain buoyant on improving asset mix and continued re-pricing benefits in corporate portfolio: Since BoB is not focusing much on branch additions, deposit mobilisation will be largely driven by existing capacity utilisation and digital channels/BCs/fintech partnerships. About 70% of transactions happening outside the branches are handled by BCs. Asset quality remains under control; credit cost to moderate further: The asset quality remains under control, while a strong PCR provides comfort. The bank has hired talent from outside and formed a collection vertical, which has kept collection levels healthy. Within the corporate book, NPAs are fully provided for, while the SMA book has come off sharply to 0.4% from 2.5% earlier. We estimate FY25 RoA/RoE of 1.1%/15.3% and value the stock at Rs 240 (1.1x Sep’24E ABV). We have a ‘buy’ rating on the stock.