Buy Bank of Baroda Ltd For Target Rs.240- Motilal Oswal Financial Services
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RBI cites material supervisory concerns; keeps us watchful of business growth
* The RBI has directed Bank of Baroda (BOB) to suspend onboarding customers through its BOB World mobile application. The move was driven by concerns regarding the processes and the manner in which BOB has acquired a large number of customers through its digital platform, the RBI said. There have been media articles recently about the process lapses at BOB in order to rapidly boost the number of digital customers.
* The bank has 53m app downloads and 30m activated users as of Mar’23. The ban may impact the bank's ability to sustain healthy business growth, as about 98%/91% of SA/CA acquisitions are currently done through digital channels. Moreover, 58% of FDs and 42% of RDs are also booked via digital channels.
* On the lending front, 61% of credit cards and 89% of personal loans are sourced digitally. Even in other retail products, 67-68% of home and auto loans are sourced digitally and the bank has been guiding to increase the mix of the RAM segments in total loans.
* Retail loan growth currently stands at 25% YoY, led by strong growth across secured and unsecured products. We will be watchful of growth in unsecured PL as the current growth rate is 83% YoY (100% YoY growth in FY23). The RBI has already been cautioning about faster growth in these segments.
* While there may not be any near-term asset quality implications of this ban, but given the rising mix of digital sourcing and the higher cross-sell rate that the bank has been focusing on via BOB World, this ban can affect the growth trajectory in the retail product segments over the near term.
* The RBI has advised that further onboarding of customers via the ‘bob World’ application will be subject to rectification of the deficiencies and strengthening of the underlying processes. Going by the recent digital embargo episode on another private bank, we think that the ban may stay for at least few quarters. We currently have a BUY rating on BOB with a TP of INR240.
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