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We met Bank of Baroda (BoB)’s CFO, V Inumella Sridhar, to discuss the management outlook on growth, margin strategy, and the ongoing noise around PSB consolidation. The mgmt expects credit growth to remain healthy at 11- 13%, driven by growth in the retail/MSME and corporate segments, incl its sizable overseas portfolio that is benefiting from rupee depreciation. The mgmt expects core NIM to be stable at ~2.8% and overall margins at 2.85-3% in H2, supported by interest on the IT refund continuing in the near term. BoB carries floating provision of Rs10bn (0.1% of loans) in anticipation of potential transition to the ECL framework and expects a modest impact of ~75bps on CET 1 from the draft ECL norms, which too could be slightly diluted. The mgmt stated that banks are not involved in any discussions on PSB consolidation; it is hopeful that the consolidation would be less stressful this time around, as most banks are relatively healthy now and considering learnings from the last round. We retain BUY on BoB while raising our TP to Rs350 (from Rs330), rolling forward SA bank to 1x Dec-27E ABV and subsidiaries/investment at Rs15/sh. We remain positive on PSBs in general, as also on BoB, given its healthy return ratios, capital buffer, stable mgmt team, and reasonable valuations (0.9x FY27E ABV).

Growth to remain healthy; NIM guidance in the range of 2.85-3.0% in FY26 BoB continues to deliver healthy double-digit credit growth at ~12%, well above the system’s, driven by sustained momentum in the RAM segment and overseas portfolio benefiting from the rupee depreciation. While corporate credit growth remained soft in Q2, the management expects a pickup in H2, supported by healthy demand from renewable energy (particularly wind), data centers, infrastructure, etc and the funding dynamics turning favorable. Within retail, the bank is seeing healthy traction in mortgages and vehicle loans, while LAP is restricted due to unspecified end-use, as is the case with most PSBs. The bank has also given guidance for credit growth of 11-13% in FY26, with further acceleration expected in FY27. The mgmt expects core NIM to be stable at ~2.8% despite the recent rate cuts and portfolio shift toward overseas loans, due to commensurate deposit re-pricing and higher share of the MCLR portfolio. The higher recoveries and interest on IT refund should help it clock overall NIM of 2.85-3%.

Best-in-class asset quality; building provision buffers to limit the ECL impact The bank’s asset quality continues to improve – GNPA ratio has improved to a low of 2.2% (second best to SBI) due to contained slippages and healthy recoveries. The mgmt believes that it has a sizable written-off recovery pool of Rs620bn/3.5% of average assets; it expects a recoveries run-rate of Rs7-10bn per quarter over the next 2Y, after which the pace is likely to moderate. The mgmt indicates that the provisions related to projects under implementation and the moratorium on MSME loans are both expected to be limited in 3Q, though the final impact has yet to be assessed. On the ECL front, BoB expects net ECL impact of up to 75bps on CET 1, which too could be diluted by the RBI if floor rates on the SMA pools are reduced. That said, BoB has already started making floating provisions (Rs4bn in 2Q) and carries an o/s pool of Rs10bn (0.1% of loans).

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