Bank of Baroda investors need to look beyond good Q4 biz update
2 min read . Updated: 11 Apr 2023, 11:20 PM IST
PremiumInvestors are pleased about the bank’s March quarter (Q4FY23) business update, which indicated that the public sector lender is likely to end FY23 on a good note.
Shares of Bank of Baroda (BoB) rose by around 3% on Tuesday. Investors are pleased about the bank’s March quarter (Q4FY23) business update, which indicated that the public sector lender is likely to end FY23 on a good note.
In Q4, the bank saw healthy loan (credit) growth of 19% year-on-year (y-o-y) to ₹9.74 trillion. Domestic advances accounted for 82% of total loans and grew at a slower pace of 16.9%.
Within this, retail advances grew at a faster rate of nearly 27% y-o-y and formed 22% of domestic advances. Also, BoB’s total deposits were up 15.1% y-o-y.
With the tightening of liquidity, banks are racing to mobilise deposits to meet their credit demand and the trend in deposit growth is likely to continue.
As Nitin Aggarwal, head of BFSI research, institutional equities, Motilal Oswal Financial Services said, “Compared to many other banks that have released their Q4 updates so far, BoB has fared better on CASA and overall deposit growth. The same trend in deposit growth vis-à-vis peers can be expected to continue in FY24 as well."
Faster repricing of loans than deposits means that the bank’s net interest margin (NIM) could get some cushion in Q4. JM Financial Institutional Securities Ltd analysts note that the share of the floating rate portfolio is higher for public sector banks including BoB.
In their Q4 banking sector preview report dated 5 April, the analysts said, “We expect margins to remain healthy given continued repricing of MCLR-linked loans."
Against this backdrop, BoB’s net interest margin could improve marginally in Q4.
But all is not hunky dory. Usually, with the rising cost of funds, NIMs of banks come under pressure.
Accordingly, that is a key monitorable for investors in FY24. Also, with deposit rates rising to meet the credit demand, the banking sector NIMs are expected to moderate. Further, the tapering of credit growth, too, is likely to put pressure on the net interest income and NIMs.
“BoB’s loan growth is likely to moderate to 15-16% in FY24 from 19% in FY23. The bank’s NIM can be expected to moderate in H2FY24," said Aggarwal.
To be sure, BoB’s diversified portfolio mix has aided loan growth in FY23 and should help, going forward as well. Investors seem to be factoring the optimism to a good extent. After all, the stock has risen by 42% in the last one year.