Bank Of Baroda - Scaling New Heights: Prabhudas Lilladher

Prabhudas Lilladher Report

We remain positive on Bank of Baroda Ltd. given,

1. domestic corporate credit is reviving as growth touched an eight-year high of up 13% YoY and the bank would be a key beneficiary as corporate loan share is ~40% and market share in overall advances is sizeable at 6.6% post-merger,

2. Bank of Baroda could see net interest margin expansion for one-two more quarters while private bank margins might peak in Q3 FY22, due to higher share of Marginal Cost of Funds Based Landing Rate linked loans (53% versus 30% for private banks),

3. balance sheet is stronger as gross non-performing asset in Q2 FY23 reduced to 5.3% from 8.1% while provision coverage ratio enhanced from 67% to 79%; expect return on asset/return on equity to improve over FY22-25E from 0.6%/9.6% to 0.9%/14.7%.

We had recently raised FY23E earnings by 8% for Bank of Baroda, however, with asset quality risks abating and steady credit growth outlook, there is likelihood of further earnings upgrade.

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