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Our view – Management has improved its credit cost guidance

Asset quality - There was a sequential fall in slippages and management has improved its credit cost guidance: Gross NPA additions amounted to Rs 30.18bn for 1QFY25, translating to an annualized slippage ratio of 1.1%. The bank has maintained its guidance for a slippage ratio of 1-1.25% for FY25. Recoveries and upgrades amounted to Rs 16.57bn for 1QFY25 and the recovery from TWO was at Rs 5.54bn for the quarter. The bank expects a total recovery of Rs 100bn including NPA recoveries and recoveries from written-off accounts in FY25. Provisions were Rs 10.11bn, down by -22.4% QoQ, translating to calculated annualised credit cost of 38bps. The provision was lower sequentially as the bank has received Rs 3bn on loans which were having government guarantee. The bank has reduced its credit cost guidance from 1% to 0.75% in FY25.

Net interest margin – On a normalised basis NIM has sequentially improved and management has maintained its guidance: Global NIM was at 3.18%, down -9bps both on QoQ and YoY basis. Excluding the higher recoveries in 4Q the normalised NIM for 4Q would have been 3.14% and hence on a normalised basis the NIM is up by 4bps QoQ. The bank has, once again, guided for a NIM of 3.15% plus or minus 5 bps for FY25.

Balance sheet growth – Loan growth subdued due to de-growth in corporate loans, but management guided for an overall improvement going forward: Whole bank advances de-grew/grew -1.7%/8.1% QoQ/YoY driven lower sequentially by Corporate and International advances. Overall corporate loan growth was sluggish as the bank has allowed to mature some finely priced loans. Excluding the institutional loan book, the core corporate advances have grown at 12% YoY. Total deposits have grown at 8.9% YoY but have de-grown by -1.5% QoQ. The bank has allowed to mature some bulk deposits and they were down by -10.7% QoQ. The management has maintained its guidance of 12-14% advances growth and 10-12% of deposits growth for FY25.

We maintain ‘Buy’ on BoB with a revised price target of Rs 360: We value the bank at 1.2x FY26 P/BV for an FY25E/26E RoE profile of 15.8/16.0%. We assign a value of Rs 20.7 per share to the subsidiaries, based on SOTP. We had flagged BoB as a top pick in our report dated May 2023.

Other Aspects (See “Our View” above for elaboration and insight) ?

Opex control: Total cost to income ratio was at 49.2% down/up by -12/381bps QoQ/YoY and the Cost to assets was at 1.8% down by -26/-2bps QoQ/YoY ?

Fee income: Core fee income to average assets was at 0.4%, down -12/-4bps QoQ/YoY

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