Bank of Baroda’s margin pressure to continue before easing in FY26 second half | Mint

Mumbai: Pressure on Bank of Baroda’s margins will continue during the ongoing and second quarters of 2025-26 as the cost of deposits continues to reprice with a lag, according to managing director and chief executive officer Debadatta Chand.

The margins will ease in the final two quarters, he added. 

Bank of Baroda is looking to maintain its net interest margin at about 3% as the cost of deposits peaked in the March quarter, Chand said during the lender’s post-earnings conference on Tuesday. 

NIM in the fourth quarter was 2.86%, lower than 2.94% in the preceding December quarter and 3.27% in the corresponding year-ago period.

“On the wholesale side, we have already seen significant moderation on the cost of deposit (since April). With the lag effect, both (corporate and retail) would catch up. In that scenario, maybe in Q2 or Q3, the margin would be much better as compared to the margin that we see as of today,” Chand said.

Bank of Baroda cut rates on retail savings deposit accounts from 7.30% to 7.15% in April, Chand said, adding that 40-50% of the bank’s deposits should reprice in about six months and the entire portfolio over the next year.

Domestic cost of deposits for the quarter was 5.33%, higher than 5.20% in the preceding quarter and 5.11% a year ago. Around 38% of the bank’s loan portfolio is linked to an external benchmark—the policy repo rate–whereas half the loans follow marginal cost of funds-based pricing.

The state-owned lender posted a net profit of ₹5,048 crore, up 3.3% year-on-year. But despite strong loan growth, net interest income fell 6.6% on-year to ₹11,020 crore owing to the pressure on its margins. 

However, a 24.3% increase in non-interest income to ₹5,210 crore supported profitability, allowing the bank to record a 0.3% rise in operating profit to ₹8,132 crore.

Within non-interest income, treasury income jumped 107% on-year to ₹1,559 crore, and fee income grew 13.7% to ₹2,177 crore. The bank also saw recoveries of ₹967 crore from written-off accounts during the quarter.

Global advances grew 12.8% on-year to ₹12.3 trillion as of 31 March, and deposits grew 10.3% to ₹14.7 trillion.

Optimistic outlook

The public sector bank maintained its loan growth guidance of 11-13% and deposit growth target of 9-11% for FY26. However, according to Chand, growth will depend on how liquidity conditions pan out and if the environment is conducive the bank may beat this guidance by 1-2%.

Bank of Baroda is eyeing growth of around 10% in corporate loans, slightly higher than around 9% in FY25, as pricing competitiveness remains high, Chand said. 

Demand on the corporate side remained strong but the bank was cautious in terms of pricing given the pressure on margins, he added. The bank is seeing demand from sectors such as renewables, roads and infrastructure and allied services, he explained.

The bank’s personal loan book, which comprises largely salaried customers, has been growing well with minimal delinquencies, and the lender will continue to grow it at around 20%, Chand said. Given that the bank’s microfinance exposure is small, the quality of its retail loan portfolio is strong, he added.

Bank of Baroda’s gross non-performing assets, or bad loans, improved to 2.26% at the end of March, from 2.43% at the end of December and 2.92% a year earlier. Net NPA ratio at 0.58% was better than 0.59% a quarter ago and 0.68% a year ago.

However, slippages in the March quarter continued to be elevated at ₹2,873 crore, a bulk of which— ₹1,473 crore—were from loans to micro, small, and medium enterprises (MSMEs), and ₹723 crore from retail loans.