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Informist, Friday, Jul. 25, 2025

By Aaryan Khanna and J. Navya Sruthi

MUMBAI/NEW DELHI – A large offshore account that became a non-performing asset in the June quarter is likely to be recovered in the remainder of 2025-26 (Apr-Mar), Bank of Baroda's management told analysts in a post-earnings call Friday. The bank had provided 40% of the exposure, which added to its quarterly provisions by INR 2 billion in the latest quarter, the bank said.

"...although we have made a 40% provision as a potential provision theory, but we do not see any challenge on this account," Managing Director and Chief Executive Officer Debadatta Chand said. "And we think we can recover the amount in full."

The bank's provisions rose 94% on year to INR 19.67 billion in the June quarter, which weighed on the bottom line. The state-owned bank reported a net profit of INR 45.41 billion in Apr-Jun, up less than 2% on year. 

The account has considerable state backing in international territories, and it is fully secured. The account has entered a standstill condition, and the recovery process should take at most 210 days, which will allow the provision to be written back within FY26, the management said. The bank expects recoveries to rise in the subsequent quarters from a seasonally weak June quarter, including the impact of one-off gains from accounts such as this one, Chand said. 

Beyond this account, the chief executive said there was no stress in the bank's international loan book, which made up around 18% of its total advances of INR 12.07 trillion as of Jun. 30. However, provisioning on standard assets had also gone up despite a sequential 2% fall in the lender's loan book. Chand explained that the bank's auditors recommended increased provisioning on some legacy accounts in the June quarter, which moved between the special mention account books. The bank provided INR 5 billion to INR 6 billion to those accounts, and with the release from reduced outstanding loans, it reported an increase of INR 3.24 billion in standard asset provisions. In the June quarter last year, it had received a write-back of INR 1.92 billion in this segment. 

Speaking about its profitability, the management said it expects pressure on net interest margins to remain in Jul-Sept before improving from the December quarter onwards. Bank of Baroda's net interest margin fell to 2.91% in the June quarter from 2.98% a quarter ago, both factoring in gains from an accounting change on tax.

Chand highlighted that the fall in the net interest margin from the trailing quarter compared favourably with other large banks. Margins across lenders have been under pressure after the Reserve Bank of India's Monetary Policy Committee cut the policy repo by 100 basis points since February. The repricing on retail loans had gone through immediately, which hurt margins, but the bank expects the cost of deposits to go down by 15-17 bps by September-end as 70-80% of its loans reprice, the management said. The bank guided for a net interest margin of 2.85-3.00% for FY26. 

The rate cut and the RBI's open market operations helped the bank's bottom line in the reporting quarter through an increase in treasury income, which in turn aided other income. Treasury income shot up to INR 22.26 billion in the June quarter, from INR 2.95 billion a year ago. The management said the bank expects another rate cut after September, but a fall in Indian bond yields – and consequently treasury gains – would depend on the movement in US Treasury yields. Still, Chand said further open market gilt purchases by the central bank in upcoming quarters could aid treasury profits. 

On the business side of things, Chand said the management is focusing on increasing its fee income, which grew less than 10% on year. The bank also looks to grow on the retail front, with a focus on personal loans and advances to micro, small and medium enterprises. While bad loans in these segments have grown, the book still remains healthy despite the pace it is growing at, Chand said. Retail loans grew at 17.5% on year and MSME loans at 13.1%.

"...in terms of slippage ratio, I don't think there is a concern because the retail slippage ratio as on June is below that of June last year. So, in that way, the denominator is also going up," Chand said. "So, both the gross non-performing asset (ratio) of the retail products and MSME, the slippage ratio in the retail products and MSME, these are well within our threshold and maintaining the same level of outstanding as compared to the last year."

The bank was maintaining an average yield of over 9% from retail, agriculture and MSME loans, or the 'RAM' segment, Chand said. The bank was progressing on the retailisation of its loan portfolio and its goal of this segment reaching around 65% of the portfolio, as it had guided earlier. Advances to the 'RAM' segment made up 62.7% of the book as of Jun. 30 from 59.7% a year ago. However, the change in the portfolio mix occurred because of a slower pace of growth in corporate loans, which may pick up in the coming quarters.

"So, it (65% of loans being 'RAM') is not going to happen this year because this year, look, as of today (Jun. 30), if we're at 62.7%, because the corporate growth is a bit muted," Chand said. "When the corporate growth catches to almost like a 9-10% possibly, this number may not be the same level."

The bank expects corporate loan growth to pick up going ahead after moderating in the June quarter. Advances to corporates rose 4.2% on year to INR 3.70 trillion as of end-June. Chand said corporate loan growth moderated because of strong balance sheets of corporate houses and the availability of cheaper funding in the bond market.  End

Edited by Tanima Banerjee

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