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Bank of Baroda (BoB) reported an 8% beat on PAT at Rs45bn, mainly due to higher treasury gains, partly offset by higher provisions (~2x our estimates, mainly due to higher write-offs). Credit growth was healthy at 12.6% YoY, outperforming system growth, while NIM declined by just 7bps QoQ to 2.91%. The management expects NIM pressure to continue in 2Q; however, it expects FY26 NIM at 2.85-3.0%. Slippages rose to 1.4% of loans, led by seasonal KCC NPAs, legacy PL stress, and a Covid-era international account under CNC resolution (40% provision made; full recovery expected in FY26). We fine-tune our earnings estimates, while retaining BUY with an unchanged TP of Rs280, valuing the standalone bank at 0.9x Jun-27E ABV and subsidiaries/investments at Rs15/sh. We remain positive on PSBs in general and also on BoB, given its healthy return ratios, capital buffer, stable management, and reasonable valuations.

Healthy growth; NIM slips a bit BoB reported healthy credit growth at 12.6% YoY, though down 2% QoQ. Retail credit growth was a bit slow at 17.5% YoY/1.9% QoQ, while the corporate book declined 10% QoQ. Within retail, growth was broad-based across segments, with housing, auto, PL, and GL reporting healthy growth of 16-20% YoY. NIM for Q4 was reclassified higher at 2.98% (unadjusted at 2.86%) on income tax refund. On the higher base, NIM contraction was well contained at 7bps QoQ to 2.91% vs peers’ contraction of 11-18bps in 1Q. The mgmt indicated that margins would remain pressured in Q2FY26 which will be partly offset by deposit repricing (15–17bps reduction in CoD on a stock basis). Further, 70– 80% of the deposit base is expected to be repriced by Q3 which should help ease funding costs ahead and thus help manage margins around 2.85-3.0% in FY26E.

Stable headline asset quality; MSME NPAs remain within the threshold Gross slippages were elevated at Rs36.9bn/1.4% of loans, owing to seasonally higher KCC slippages, as well as retail and international slippages. However, higher write-offs led to a stable GNPA ratio of 2.3%. The mgmt indicated that incremental NPA of Rs1bn in PL largely pertained to legacy accounts, while MSME NPAs remained within the threshold. On the international front, a restructured Covid-era account has entered the resolution process (CNC), with the outcome expected in 210 days. The exposure has gradually reduced, and the bank has made 40% provision; it expects full recovery by FY26. The SMA pool inched up a bit by 7bps to 0.40%; excluding three large stateguaranteed accounts, it remains below 0.1%.

Retain BUY; taking comfort from the bank’s healthy RoAs, lower valuations We fine-tune our earnings estimates, while retaining BUY with an unchanged TP of Rs280, valuing the standalone bank at 0.9x Jun-27E ABV and subsidiaries/investments at Rs15/sh. We remain positive on PSBs in general and hence, also on BoB given its healthy return ratios, capital buffer, stable management, and reasonable valuations. Key risks: Macro slowdown leading to slower credit growth, higher margin contraction, and assetquality disruption – particularly in the SME space.

Key Concall takeaways

Outlook on loans, deposits, and margins

• The bank moderated growth in the personal loan segment, in line with prior guidance.
•  Corporate credit growth remained in line with industry trends, impacted by seasonal factors. Some corporates with strong cash flows are deleveraging, while others are tapping into the bond market for cheaper funding. The management expects corporate credit to grow by 9-10% in FY26.
• RAM mix to be 65% over 2-3 years.
• Margins declined by a 7bps cut; however, excluding the reclassification impact from the tax refund, NIMs remained at 2.81% vs 2.86% in Q4.  
• Loan book composition: 35% BLLR-linked, 45% MCLR-linked, 7% fixed deposit-linked, and 6% G-Sec linked.
• Margin will be under pressure in Q2, but 2H will be better than H1; full-year NIM to remain at 2.85-3.0%.
• On the liability side, the bank expects some relief from deposit repricing which could result in a 15–17bps reduction in the CoD (on a stock basis). 70-80% of deposits to get repriced by Q3.
• Overseas NIMs remain resilient. The recent 5bps dip is considered transient, with earlier rate cuts already priced in until March.
• The yield on the RAM portfolio is ~9.5%. In the corporate book, the bank exited highquality, high-cost assets, optimizing for pricing

Asset quality

• Slippages were elevated largely due to a few account-specific issues. Further, PL slippages included Rs1.5bn new additions largely from legacy accounts.
• On the international front, one restructured account from the Covid period has moved to SMA-1/SMA-2 and has now entered resolution (CNC); the outcome will be known in 210 days. Exposure has reduced and provision is already made. The bank does not foresee challenges in this account and expects full recovery in FY26. Further, this account under resolution has state backing.
• In MSMEs, the slippage remains contained and within the acceptable threshold. This is entirely from secured accounts. The bank has minimal exposure to unsecured MSMEs, which are mostly covered by CGTMSE.
• SMA accounts accounted for 0.4% of the book, with three accounts being government entities and backed by government guarantees. Excluding these, SMA levels are just at 0.1%.
• The bank is fully compliant with IRAC norms. An additional Rs5-6bn of provisions were made on standard assets, due to weakness in some accounts.
• The bank is working on the resolution of an airline account and the process involves land parcel sale, and there is an arbitration process and other processes going on.

Others

• LCR remains healthy at 119%. Adjusted for Q1FY26 profit, CET-1 stood at 14.55% and CAR at 18.04%.
• Recoveries from written-off accounts are averaging at Rs7.5bn a quarter, excluding oneoffs. Q2 is expected to see better recovery. There is limited pipeline from NARCL/ARC, with multiple resolution processes underway. A couple of accounts are under active discussions. Recovery target from technical write-offs is Rs100bn.
• The bank’s target is to open 300 branches, with 10k employees in FY26.

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