Financial Highlights:

Q4FY24 Result Highlights
Bank of Baroda (BOB) demonstrated robust business growth in Q4FY24, marked by solid advances and deposit increases, improved margins, and stable asset quality despite facing higher provisioning expenses. The company reported a 2% YoY and 6% QoQ increase in Net Interest Income, which rose to Rs 11,793 crores. The bank faced high provisioning expenses due to additional provisions for aviation exposure and increased operating expenses (opex) resulting from pension provisions and a decline in the discount rate. Business growth was robust, with loans growing 13% YoY (4.1% QoQ) and deposits increasing 10% YoY (6.6% QoQ). Consequently, the credit-deposit (CD) ratio moderated to 80.3%, and the liquidity coverage ratio (LCR) decreased to 121% from 133% in Q3, positively impacting margins. Other income saw a significant jump of 21% YoY and 49% QoQ to Rs 4,191 crores, driven by strong fee income, robust treasury income of Rs 520 crores (compared to Rs 38 crores in Q3), and interest on an IT refund of Rs 313 crores. Operating expenses grew 14% YoY due to wage settlements and the impact of a lower discount rate. Consequently, pre-provision operating profit (PPoP) increased 16% QoQ to Rs 8106 crores. Provisions rose by 95% QoQ to Rs 1300 crores, including additional provisions of Rs 550 crores for aviation exposure, making the account fully provided for. Profit after tax (PAT) increased by 2% YoY to Rs 4,889 crores, driven by higher other income, which was partly offset by higher opex and higher provisions. Net interest margins (NIMs) improved by 17 bps QoQ to 3.27%, partly supported by recoveries, while excluding the one-off items, NIMs stood at 3.15%.

The yield on Advances increased to 8.75% in Q4FY24 as against 8.47% in Q4FY23. The cost to Income ratio stands at 49.29% for Q4FY24. Cost of Deposits increased to 5.06% in O4FY24 as against 4.43% in Q4FY23. The slippage ratio declined to 0.99% for FY24 as against 1.07% in FY23. The slippage ratio for the quarter stands at 1.12%. Credit cost stands at O 57% for Q4FY24 and O 67% for FY24. The CRAR and CET-1 of the consolidated entity stand at 16.68% and 13.02% respectively. The slippage ratio declined to 0.99% for FY24 as against 1.07% in FY23. The slippage ratio for the quarter stands at 1.12%

In the fourth quarter of FY24, the Bank of Baroda (BOB) experienced a rise in slippages to 1.2%. However, healthy growth in advances contributed to a decrease in the Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) ratios by 16bps and 2 bps QoQ, respectively, to 2.9% and 0.7%. The Provision Coverage Ratio (PCR) remained stable at 77.3%. Advances grew by 4.1% QoQ, reflecting a 13% YoY increase. Retail loans showed robust growth, with a 6% QoQ (21% YoY) increase, while the corporate book grew by 5% QoQ (12% YoY). The SME and Agri books also saw growth of 2.9% and 3.3% QoQ, respectively. In the retail segment, personal loans grew by 8% QoQ (52% YoY), gold loans by 24% QoQ (88% YoY), and auto loans by 4% QoQ (24% YoY). Deposits grew by 10% YoY (7% QoQ), with a significant improvement in the CASA ratio to 41.3% due to heavy seasonal Current Account (CA) flows. BOB anticipates healthy advances growth of approximately 12%-14% in FY25 and aims to reduce growth in personal loans. The Return on Assets (RoA) improved to 1.25% in the fourth quarter and stood at 1.17% for FY24, while the Return on Equity (RoE) was 20.8%.

Key Conference Call Takeaways
Balance sheet and P&L

• Global advances grew 12.5% YoY, with domestic advances grew by 12.9% YoY and international advances by 10.6% YoY.
• The percentage of investments in SLR Securities to NDTL as of March 2024 was 26.11%.
• The bank's Liquidity Coverage Ratio (LCR) stood at 120.6% in FY24 and is expected to remain at 120% or above as it realigns some assets both domestically and internationally.
• BoB experienced an almost 100bps increase in deposit costs due to a tight liquidity scenario.
• Excluding the seasonal effect of year-end recoveries, NIMs for Q4FY24 would have been approximately 3.15%.
• Other income rose due to treasury income of Rs 520 crores and interest on an IT refund of Rs 313 crores.
• International deposits grew significantly due to treasury operations, with an increase of Rs 1500 crores in international investments.
• Fee income is expected to be sustainable due to the establishment of a licensee vertical, fully stabilized across the bank, especially for mid and large corporates last year. Structural changes will ensure fees remain sustainable and optimize growth beyond 16% in the future.
• The personal loan book grew 52% YoY in 4Q, aligning with the bank’s guidance for moderate growth, compared to 61% YoY growth in 3Q.
• Deposit growth was 10.2%, slightly below the 12% guidance, as the bank aims to reduce reliance on wholesale deposits. In terms of deposits, focus is on improving CASA and reducing dependency on wholesale deposits. Guidance for growth in FY25 at 10-12%.
• Advances: Guidance for credit growth for FY25 at 12-14% with retail accretion of 20% and corporate growth at 11-12%.
• RoA was 1.25% in Q4FY24 and 1.17% for FY24, exceeding the 1% guidance.
• The retail book surpassed Rs 2,00,000 crores, with expectations of continued strong growth.
• While trading profits are expected to decline due to new investment guidelines, the bank is confident in maintaining healthy income from investments.
• BoB anticipates a moderation in interest rates during 2QFY25 and 3QFY25.
• The bank has increased pricing on MCLR and completed repricing, resulting in higher yields.
• The outstanding restructured book declined to Rs 8150 crores in the current quarter.
• The bank provided slightly above 17% for the wage revision, with no write-back necessary.
• Fee income growth was robust, supported by structural changes aimed at optimizing growth. The bank has deliberately reduced growth in personal loans, which previously contributed significantly to fee and commission income.

Provisions and RBI regulation

• Slippages rose due to two large accounts: one aviation account totaling Rs 1700 crores and one international account totaling Rs 500 crores.
• The bank provided Rs 550 crores for the aviation account this quarter, (100% provided).
• The RBI regulation on risk weights impacted the capital adequacy ratio by 65 bps, resulting in a CRAR of 16.3%.
• BoB expects the RBI draft guidelines on provisions for project finance to impact credit costs by less than 10 bps.

Asset quality

• GNPA and NNPA ratios improved by 16 and 2 basis points QoQ to 2.9% and 0.7%, respectively.
• For Q4, GNPA ratios were 0.98% for housing loans (excluding pools), 1.34% for auto loans (excluding pools), 1.95% for personal loans, and 0.67% for retail gold loans.
• The provision coverage ratio (PCR) for NCLT accounts was 99.99%.

• Next year, the bank expects recovery in written-off accounts to remain around Rs 5100 crores, with a target for total recoveries at Rs 10000.
• BoB aims to reduce GNPA and NNPA ratios to around 2.5% and 0.5% going forward.
• The bank anticipates substantial reserve accretion due to new investment guidelines.
• Slippages guidance was set at 1-1.2%, with current quarter slippages at the higher end of this range.
• BoB holds a joint aviation account with the central government, fully provisioned at Rs 1750 crores for the year. This account is backed by collateral security, and full recovery is expected pending outcomes of legal proceedings in the Delhi HC and NCLT.
• GNPA/NNPA are targeted to move to 2.5%/0.5%.

Guidance

• The bank continues to guide for a net interest margin (NIM) of 3.15%, with a possible variation of 5 bps on either ends.
• Total advances are projected to grow by 12%-14% in FY25, with a focus on reducing growth in the personal loan segment and increasing emphasis on retail.
• The credit-deposit (CD) ratio is expected to be maintained within the range of 80-82%.
• Deposit growth is anticipated to be around 10-12%, with a strategic focus on CASA and retail term deposits.
• Credit costs are guided to remain below 1%, with slippages expected to range between 1-1.25%.
• The bank forecasts a return on assets (RoA) of approximately 1.1% for FY25.

Outlook & valuation

Bank of Baroda's (BOB) Q4FY24 results reflect a mixed performance, with steady net interest income (NII) growth but higher provisioning expenses impacting profitability. The bank's business growth remains healthy, with robust advances and deposit growth. Despite challenges such as increased deposit costs and provisioning for specific exposures, BOB's focus on retail loans and fee income sustainability have enabled BOB to deliver steady financial performance. The bank's asset quality has improved, with a decline in GNPA/NNPA ratios, although slippages have increased. Management's guidance for the future includes a focus on maintaining margins, healthy advances growth, and reducing dependency on wholesale deposits. Among PSBs, we believe that BOB is well positioned to deliver steady growth considering stable asset quality, sustained strong RoA/RoE delivery coupled with better management credibility and adequate capital levels and reasonable valuations. Going forward, the bank expects growth to be calibrated with a sustained focus on protecting margins and managing asset quality. Continued loan growth momentum, stable margins, and low credit costs will support ROA. RoA guidance for FY25 raised to 1.1% from 1.0% due to improved profitability. At a CMP of Rs. 266, the stock is trading at 1.1x FY26E. We recommend a HOLD rating on the stock.