Chand’s Growth Focus Helps BoB Beat Peers

THE INDIAN BANKING SECTOR is on a roll. There is growth on all parameters from revenues to profits. However, for Bank of Baroda (BoB), the pace has been particularly rapid. The public sector bank’s net profit grew at a CAGR of 129.7% in last three years, from ₹1,547.7 crore in FY21 to ₹18,767 crore in FY24, among the best in the industry. Combined net profit of all listed banks grew at a CAGR of 40.9% between FY21 and FY24. Alongside, the bank’s non-performing assets (NPAs) more than halved to ₹31,834 crore at FY24-end from ₹66,671 crore at the end of FY21. Debadatta Chand, who served as executive director since March 2021 and took over as MD and CEO on July 1, 2023, and has been instrumental in ensuring all-round growth, credits three factors for the bank’s performance — robust growth in loan book; 26% jump in net profit; and asset quality.

“There is a significant improvement in all parameters as far as asset quality is concerned. We are benchmarked to some of the best banks in the industry. We have reduced both gross non-performing assets (GNPAs) and net NPAs,” he says. GNPA fell 13.1% to ₹31,834 crore, while NNPA dipped 14% to ₹7,213 crore in FY24.

Nitin Aggarwal, head, BFSI Research, Institutional Equities, Motilal Oswal Financial Services, says the bank is relatively well-positioned on asset quality with comparatively lower net NPAs. “Loan growth and earnings growth have also been healthy,” he says.

In FY24, BoB achieved a significant milestone in total business. “We exceeded the ₹24 lakh crore mark in FY24,” says Chand. Retail advances crossed ₹2 lakh crore. “Retail has been growing more than 20% for many quarters. We want to slightly push for retailising our book,” he adds.

Vishal Narnolia, research analyst at ICICI Securities, says markets like to see credit growth above all. “After Bank of Maharashtra, BoB has been the fastest in terms of credit growth with primary focus on retail loans. In last three years, the majority of loans have been in retail, unlike other PSUs,” he says. The focus on retail loans helps asset quality too, he says. “BoB was, till now, balancing its retail and wholesale deposits in a fashion where it was able to hold on to costs. Only in last quarter (Q1FY25) did it see some increase in wholesale deposits but that’s in line with the trend in the entire sector,” says Narnolia. Chand says retail growth has been strong. “Our net interest income exceeded ₹44,000 crore (in FY24) for the first time,” he says. Narnolia says PSU banks still have leeway in terms of credit-deposit or CD ratio. “It seems BoB management is conscious of the low CD ratio and is focused on using it to deliver growth as well as margins.”

The bank has also gained from the successful integration of Vijaya Bank, Dena Bank and Syndicate Bank with itself. Vijaya Bank and Dena Bank were merged with Bank of Baroda with effect from April 1, 2019. The merger provided BoB a strong footprint in southern India and made it a pan-India bank. The merger and the resulting cost optimisation through branch rationalisation ensured savings and aided earnings growth, says Aggarwal.

Thanks to higher profits, return on assets, a key measure of profitability, jumped from just 0.07% in FY21 to 1.17% in FY24, among the highest in the industry. Similarly, return on net worth improved from 1.63% to 16.4%, among the highest in the industry. Chand is upbeat about FY25. “We’re expecting deposit growth of 10-12% with focus on CASA and retail term deposits. We are looking at 12-14% advances growth with focus on further retailising the book,” he says.

Given the bank’s rising graph, it will not be difficult for the bank to meet Chand’s guidance.