Snapping two sessions losing streak, shares of Bank of Baroda (BoB) edged higher in opening trade on Tuesday, a day after the state-owned lender informed exchanges that it raised ₹5,000 crore through infrastructure bonds. Cheering the news, shares of BoB gained as much as 0.87% to ₹237.55 in the opening trade, while the market capitalisation rose to ₹1.22 lakh crore. In the last two sessions, the PSU bank stock has lost 3.5%.

Bank of Baroda shares touched its 52-week high of ₹298.45 on June 3, 2024, and a 52-week low of ₹187.95 on October 26, 2023. The banking heavyweight has risen 16.5% in a year, while it gave flat return of 1% in six months. In the calendar year 2024, the counter lost 15%, whereas it fell nearly 4% in a month.

In a post-market release on Monday, the public sector lender said that it issued 5 lakh long-term 10-year infrastructure bonds of face value of ₹1 lakh each at a coupon rate of 7.26% per annum on September 9, 2024.

As per the bank, the issue received an overwhelming response from investors with a total of 105 bids amounting to ₹14,215 crore against the total issue size of ₹5,000 crore (base issue of ₹2,000 crore and greenshoe option to retain oversubscription up to ₹3,000).

“This translates into subscription of 7 times of the base issue size and 2.8 times of the total issue size," BoB said in a release.

These bonds are senior, rated, listed, unsecured, redeemable, long term, fully paid-up, non-convertible bonds in the nature of debentures, having a fixed maturity of 10 years from the date of allotment.

Last month, BoB raised ₹5,000 crore by issuing 10-year infra bonds at 7.3%, four basis points higher than the current issuance.

With this, the bank has exhausted the board's approved limit to raise ₹10,000 crore from infra bond issuances. However, there is a room for raising additional capital of ₹7,500 crore through Additional Tier 1 (AT1) and Tier 2 bonds. 

Last week, CARE Ratings reaffirmed ‘AAA’ rating with ‘Stable’ outlook on Tier II Bonds (Basel III) of Bank of Baroda. “The ‘stable’ outlook reflects CARE Ratings’ expectation that BOB will continue to maintain its steady growth in advances, deposits, and a healthy profitability profile over the medium term while maintaining stable asset quality and comfortable capitalisation levels,” the rating agency said in a report released on September 4.

CARE in its report says that the rating factored in the majority ownership and the continued and expected support by the Government of India (GoI), which holds 63.97% stake as on June 30, 2024, to the bank considering the systemic importance and the position of BOB in the Indian banking sector. “Over the past few years, the bank has seen improvement in asset quality parameters with lower incremental slippages, leading to lower credit costs, which along with strong credit growth, have helped improve the profitability. However, the ability of the bank to contain incremental slippages and maintain its asset quality remains a monitorable,” the report noted.

BoB raised equity of ₹4,500 crore through qualified institutional placement (QIP) in FY21, post which the profitability has since improved significantly, leading to the bank maintaining a higher cushion despite growing its advance book significantly.

In Q1 FY25, the bank reported a net profit of ₹4,458 crore on total income of ₹32,116 crore as against a net profit of ₹4,070 crore on a total income of ₹29,878 crore for Q1 FY24. The improvement in the profitability was on account of rise in interest rates and advances in book growth.

The interest expense of the bank also increased from ₹15,559 crore in Q1FY24 to ₹18,029 crore in Q1FY25, aided by rise in cost of deposits. As a result, net interest margin (NIM) for Q1FY25 stood at 3.18% as against 3.27% in Q1FY24.

The bank’s asset quality also improved, with gross non-performing assets (NPA) ratio dropping to 2.88% in June quarter of FY25, from 2.92% as on March 31, 2024 and 3.51% on June 30, 2023. Similarly, net NPA ratio stood at 0.69% versus 0.68% in Q4FY24 and 0.78% in Q1FY24.

(DISCLAIMER: The views and opinions expressed by investment experts on fortuneindia.com are either their own or of their organisations, but not necessarily that of fortuneindia.com and its editorial team. Readers are advised to consult certified experts before taking investment decisions.)

Follow us on Facebook, X, YouTube, Instagram and WhatsApp to never miss an update from Fortune India. To buy a copy, visit Amazon.