Bank of Baroda lowers margin guidance citing higher cost of deposits | Mint

Mumbai: Bank of Baroda lowered its margin guidance anticipating that higher cost of funds will continue after its profitability for the third quarter ended December narrowed sequentially.

The state-owned lender revised its margin guidance for FY25 to 3.0-3.1% from 3.1-3.2% at a time the bank has gone slower on certain high-yielding segments such as personal and advances to non-bank financial services companies (NBFC).

The public sector bank’s global yield on advances fell to 8.35% in Q3 from 8.48% in the previous quarter and 8.51% a year earlier, according to its earnings announced on Thursday. In comparison, the global cost of deposits increased to 5.08% from 4.96% in the previous year but was lower than 5.12% in the previous quarter. As a result, the global net interest margin (NIM) moderated to 2.94% from 3.10% both a quarter and year earlier.

In the earnings call, managing director and chief executive Debadatta Chand attributed the correction in NIM to muted growth in net interest income (NII) owing to higher interest expenses, market conditions and the persistent rise in the cost of deposits. The NII rose 2.8% on-year and fell 1.8% sequentially to ₹11,417 crore in the reporting quarter.

Chand said that the guidance has been slightly moderated as the pressure from higher cost of deposits is expected to continue. In addition, the bank is also going slower on certain margin-accretive segments such as personal and NBFC loans which could weigh on the yield on advances going forward.

Profitability trends

Global advances of the bank grew 11.8% on-year and 2.6% on-quarter to ₹11.7 trillion as of 31 December, led by 20% growth in retail loans. Of the retail loans, auto loans were 21% higher on-year, home loans 17%, mortgage loans 16% and education loans by 17%. Agriculture loans grew 13%, gold loans, including retail and agriculture, by 29, and MSME loans by 14%. Domestic loans were up 11.9% on-year at ₹9.6 trillion as of December.

Personal loans of the bank grew 24% on-year and 7% on-quarter to ₹34,340 crore. Chand said the bank had announced growing slower on personal loans in July 2023 before any issues were raised by the industry and had guided for 30-35% growth. It is now focusing on the quality of underwriting and lending more to salaried and high credit score customers and is comfortable growing personal loans at 25-30% going ahead.

The share of the bank’s retail, agri and MSME (RAM) loans grew to 59.9% of total advances from 57% last year. The RAM book is growing faster than corporate loans and the bank aims to grow their share further to 65%.

Corporate loans grew 7% on-year to ₹3.9 trillion, and Chand said the bank has also been slightly slower on corporate credit due to slower deposit growth and very fine pricing in this segment. The bank maintained its overall loan growth guidance of 11-13% for FY25 and deposit growth guidance at 9-11%.

Global deposits of the bank grew in line with the growth in advances, increasing 11.8% on-year and 2.1% on-quarter to ₹13.9 trillion as of December-end. Domestic deposits were up 9.2% on-year at ₹11.7 trillion. Low-cost current and saving account (CASA) deposits were up 6.5% on year, accounting for 39.7% of total deposits. The credit-deposit (CD) ratio for the quarter was 84%.

Chand said that the bank will continue to focus on CASA deposits more than any other form of deposits, guiding for a domestic CD ratio of 80-82% and global CD ratio of 82-84%.

On-year growth of 34.1% in non-interest income to ₹3,769 crore supported the bottomline. The bank’s net profit for Q3 rose 5.6% on-year but fell 7.7% sequentially to ₹4,837 crore, which Chand said was the eight consecutive quarter of reporting profit after tax of over ₹4,000 crore.

The bank’s return on assets (RoA) for the quarter was 1.15% lower than both 1.30% in the previous quarter and 1.20% in the corresponding quarter of the previous year. Chand said this was the tenth successive quarter of over 1% RoA and the bank continues to maintain a guidance of over 1% RoA for FY25.

Asset quality of the bank was healthy, with gross non-performing assets (NPA) ratio of the bank at 2.43% at the end of December, better than 2.50% in the previous quarter and 3.08% in the year ago period. Net NPA ratio also improved to 0.59% from 0.60% a quarter ago and 0.70% a year ago.