Bank of Baroda's latest financial results have sparked a flurry of reactions from analysts, highlighting a mixed bag of performance indicators that investors are keenly scrutinizing. The bank reported a nearly 7% year-over-year decline in net interest income (NII), which fell to ₹11,020 crore in the fourth quarter. Despite this setback, the bank's non-interest income surged by 24% during the same period, reaching ₹5,210 crore, providing a crucial boost to its overall financial health.
Debadatta Chand, the Managing Director of Bank of Baroda, attributed the muted growth in NII to the higher cost of deposits, a trend that aligns with broader market conditions. He noted that the cost of deposits peaked in the March quarter but has since moderated. However, he cautioned that the pressure on the net interest margin (NIM), which moderated to 3.02% from 3.18% a year ago, is expected to persist into the June and September quarters due to ongoing repricing of deposit rates.
Chand expressed optimism for the latter half of the financial year, stating, "NIM would pick up in Q3 and Q4 as the liability structure aligns with the lower deposit rate, where the fresh deposit gets repriced at a lower rate. I am fairly confident of maintaining NIM around 3%." He also mentioned that the bank would provide updated guidance on NIM alongside the June quarter earnings, taking into account the impact of the central bank's recent 50 basis point cut in the policy repo rate.
For the full financial year, Bank of Baroda reported a 2% increase in NII, reflecting a cautious but steady growth trajectory. The bank has maintained its loan growth guidance at 11-13% and deposit growth at 9-11% for FY26. Chand highlighted that favorable liquidity conditions might enhance loan and deposit growth by an additional 100-200 basis points over the guided range, indicating a potential for robust performance in the upcoming quarters.
Analysts from various brokerages have weighed in on Bank of Baroda's performance. Nomura retained a "buy" rating on the stock with a price target of ₹265, despite describing the quarter as weak due to disappointing net interest margins. They noted, however, that loan and deposit growth remained healthy, even as NIM pressures are expected to continue.
Investec, on the other hand, has maintained a "hold" rating with a target price of ₹248, citing a significant miss on net interest income and core pre-provision operating profit. They did acknowledge that higher treasury gains have aided the return on assets, which stood at 1.2%, and that asset quality remains stable.
Kotak Securities also retained an "add" rating with a target price of ₹255, pointing out that margins disappointed slightly but remained optimistic about the bank's overall resilience. They mentioned that return ratios remained flat quarter-on-quarter, as lower net interest margins were offset by higher non-interest income. They expect a challenging fiscal year 2026 ahead but believe that current valuations already reflect this risk.
The bank's total income for the March quarter increased to ₹35,852 crore, up from ₹33,775 crore a year ago, showcasing the institution's ability to generate revenue despite the challenges in the interest income segment. Analysts are cautiously optimistic about the bank's future, given the mixed signals from its latest earnings report.
As the market digests these results, the broader economic context plays a significant role in shaping investor sentiment. The central bank's monetary policy decisions, particularly the recent rate cuts, will be crucial in determining the trajectory of loan and deposit growth in the coming months. With six states preparing for elections in the second half of FY26, potential political shifts could also impact market dynamics.
In conclusion, while Bank of Baroda faces challenges with its net interest margins, the bank's strong non-interest income and stable asset quality provide a solid foundation for future growth. As analysts continue to monitor the bank's performance closely, the next few quarters will be pivotal in determining its direction amidst a fluctuating economic landscape.
