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Volatile core earnings but attractive valuation

BOB saw a mixed quarter; core PPoP was a 3% miss as higher core NII (4.6% beat) was offset by 27% miss on fees and 3.9% higher opex. Core reported NIM was stable QoQ at 2.69%. Fee declined by YoY as bank let go of processing/other fees to win high-ticket advances. Bank maintained FY27 guidance of 12-14% credit growth and 10-12% deposit growth. For FY27/28E we raise NIM by 5bps each, trim fee by avg. 10% while since sustainable ECL impact could be ~20bps, we raise FY28 provision by 12bps. Net impact on core PAT is not material. Stock is valued at 0.8x on FY28 ABV; we keep multiple at 0.9x and trim TP to INR 280 from INR 290. Retain ‘ACCUMULATE’.

Mixed quarter; NII beat offset by sharp fall in fees:

NII was 4.6% higher at INR 125.3bn as NIM (calc.) was better at 2.67% (PLe 2.56%); reported NIM adjusted for IT refund was stable QoQ at 2.69%. Loan/deposit growth were 17.6%/13.8% YoY. CASA ratio was 31.9% (33.1% in Q4’26). Other income was INR 34.7bn (PLe INR 33.6bn); fee was a miss at INR 12.4bn (PLe INR 16.9bn). Opex at INR 78.7bn was 3.9% above PLe; more staff cost was offset by lower other opex. Core PPoP at INR 68.3bn was 2.9% below PLe; PPoP was INR 81.3bn. Asset quality was steady with GNPA at 1.99%; net slippage was in-line. Gross slippage was INR 34.2bn; recovery was INR 16.9bn (PLe INR 17bn). Provisions were lower at INR 6.4bn (PLe INR 22bn); liability related to NMC Ltd. settlement of INR 56.8bn was fully provided. Core PAT was down 83% QoQ to INR 6.3bn; PAT was INR 12.8bn.

Loan growth QoQ was muted due to seasonality:

Loan growth was muted at -0.9% QoQ mainly led by 6.5% decline in domestic corporate; retail/SME growth was decent at 2.3%. QoQ decline in gold loans was seasonal. Corporate advances fell, as bank exited lowyielding corporate loans and shifted towards MCLR/EBLR-linked loans to protect NIM. Bank maintained FY27 guidance of 12-14% loan growth & 10-12% deposit growth despite better than usual Q1 growth, citing geopolitical risks. FCNR mobilization crossed USD 600mn, with bank targeting USD 4-5bn of overall FCNR related funding. LCR would be maintained between 120–127%.

Fee income fell by 39% QoQ; ECL guidance was higher:

Fees declined 39% QoQ/22% YoY and bank attributed this to an 'all-in-yield' pricing approach where processing/other fees are sometimes foregone to win high-ticket advances. One-time impact of ECL on CRAR is likely to be 110bps or ~INR 120bn while sustainable impact could be ~20bps. INR 25bn floating provision remains earmarked for ECL transition.

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