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BOB delivered a strong quarter with PAT at INR 48bn (+169% YoY, +24% QoQ) led by strong NII growth (+34% YoY, +7% QoQ) and lower credit cost. NIM expanded to 3.53% (+16bps) given continued asset repricing (MCLR led loans & strong growth in unsecured portfolio) despite inch up in cost of deposits (+42bp QoQ). Mgmt. remains confident of protecting NIMs above FY23 levels of 3.3%, we build largely stable NIMs in FY24. Asset quality continued to improve with GNPA/NNPA declining by -74bps/-10bps sequentially with avg. credit costs at 34bps (including INR5bn provision made towards the troubled airline exposure). Mgmt highlighted that while detailed guidelines on ECL-based provisioning are still awaited, they do not expect overall impact to be >1.5% of loans which itself will be spread over a period of time and thus expects credit costs to remain within manageable levels. BOB’s loan growth was healthy at +21% YoY, +6% QoQ with retail driving overall growth (+27% YoY, +7% QoQ). Deposit growth remained robust (+15% YoY, +5% QoQ) with pick-up in CASA deposits (8% YoY, +6% QoQ) and domestic CASA at 42.2% (+62bps QoQ). With CET1 at 12.24%, BOB is adequately capitalised and mgmt. indicated that it is not expected to raise any capital in the coming year to fund their growth aspirations. We expect BOB to report RoA/RoE of 1.0%/16.2% by FY25E driven by robust loan growth (led by continued momentum in retail segment), controlled credit costs and opex; we built in average credit cost of 1.01% over FY24-25e. Continued delivery on its 1% RoA should see stock multiples expand for BOB. We maintain BUY with a revised TP of INR 235, valuing BOB at 1.0x FY25e adj. BVPS.

* Robust loan and deposit growth : In 4QFY23 BOB witnessed a strong loan growth of +21% YoY, +6% QoQ with retail driving growth (+27% YoY, +7% QoQ) as against corporate (+13% YoY, +3% QoQ), agriculture (+13% YoY, +4% QoQ) and MSME (+12% YoY, +5% QoQ). BOB has been successful at gradually increasing share of retail loan book to 18% in 4QFY23 as against 14% 4QFY20 and will continue to focus on retail with calibrated growth in the wholesale vertical. Management remains confident of growing faster than overall system growth with continued expansion in retail (as well as unescured loans). We build a loan growth of 15% over FY23-25e. Deposit growth remained robust (+15% YoY, +5% QoQ) though TD/bulk deposits grew faster than CASA deposits (7.6% vs 5.9% for the latter QoQ). Domestic CASA stood at 42.2% (+62bps QoQ). A large proportion of the incremental TD/Bulk deposit growth has come with deposits <399 days tenor which should BOB sustain its NIM profile as rates peak out. Deposit growth is expected to sustain at 15% over FY23-25e.

* Strong NIMs and low credit costs drive 1%+ RoA: PPOP for 4QFY23 grew to 81bn (+43% YoY, -2% QoQ) led by NII growth at INR 115bn (+34% YoY,+7% QoQ). NIM expanded to 3.53% (+16bps) on the back continued asset repricing even as cost of deposits inched up (42bps QoQ). Mgmt. expects NIM to remain between 3.3-3.5% given that a sizeable part of MCLR-linked loans are yet to be repriced fully. Opex growth was relatively higher in (+26% YoY, +13% QoQ) on account of one off due to wage revision and performance linked incentive accounted for in this quarter. Credit cost remained restricted at 0.34%

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