Bank of Baroda , one of India's leading public sector banks, has reaffirmed its credit growth guidance of 11-13% for FY26, despite facing some challenges in the first quarter. The bank's strategic focus on retail and MSME segments is expected to drive this growth.

Q1 Performance Highlights

Bank of Baroda reported a modest 1.9% increase in net profit, reaching Rs 4,541.00 crore for Q1FY26. However, the bank experienced a slight decline in Net Interest Income (NII), which decreased by 1.4% to Rs 11,435.00 crore.

Credit Growth and Segment Performance

The bank achieved an overall advances growth of 12.6% year-on-year in Q1, primarily driven by the Retail, Agriculture, and MSME (RAM) segment, which saw a robust 18% rise. However, corporate lending growth slowed to 2.5% due to seasonal factors. Despite this, management remains optimistic, expecting around 10% growth in the corporate segment for the full year.

Asset Quality Improvements

Bank of Baroda demonstrated significant improvements in asset quality:

• Gross Non-Performing Asset (GNPA) ratio improved to 2.28% from 2.88% year-on-year
• Net Non-Performing Asset (NNPA) ratio decreased to 0.60% from 0.69%

Challenges and Risk Management

Q1 saw an increase in slippages by Rs 500.00 crore above the typical quarterly run rate of Rs 2,800.00-2,900.00 crore. This increase was primarily attributed to one international account entering the resolution process. Excluding this account:

• Slippage ratio stood at 0.99%
• Credit cost was contained at 0.47%

Financial Performance Analysis

Comparing Q1FY26 with the previous quarter (Q4FY25), we observe:

Despite the slight decline in quarterly performance, Bank of Baroda's year-on-year growth remains positive, with revenue increasing by 11.37% compared to Q1FY25.

Outlook

Bank of Baroda's maintained credit growth guidance of 11-13% for FY26 reflects the management's confidence in the bank's ability to navigate current market conditions. The focus on retail and MSME segments is expected to be a key driver of this growth, offsetting the temporary slowdown in corporate lending.

As the bank continues to improve its asset quality and manage risks effectively, it remains well-positioned to capitalize on the growing credit demand in the Indian market, particularly in the retail and MSME sectors.

Bank of Baroda , one of India's leading public sector banks, has made a significant move in the June quarter by substantially reducing its corporate loan portfolio. This strategic decision, aimed at protecting its net interest margins, comes in the wake of challenging market conditions and pricing pressures.

Corporate Loan Book Reduction

Bank of Baroda has taken a bold step by cutting down its corporate loan book by a staggering ₹42,000 crore in the June quarter. This reduction represents a 10% quarter-on-quarter decline, bringing the total corporate loan book to ₹3.7 lakh crore. The move is part of a larger trend observed in the banking sector, with Bank of Baroda and Canara Bank collectively reducing their corporate loan portfolios by ₹54,000 crore.

NBFC Exposure Trimmed

In addition to the overall corporate loan reduction, Bank of Baroda has specifically targeted its exposure to Non-Banking Financial Companies (NBFCs). The bank's NBFC loans witnessed a sharp 11.6% decline, with a reduction of ₹15,000 crore in this segment alone.

Rationale Behind the Move

The primary driver behind this substantial loan book reduction is the pressure on net interest margins (NIM). Following a 100 basis points cut in the repo rate since February, banks have faced increasing repricing pressure, particularly on loans extended to public sector undertakings. Rather than accepting lower pricing that could further stress their margins, Bank of Baroda chose to let go of this business.

Impact on Net Interest Margin

Despite these efforts, Bank of Baroda's net interest margin has seen a slight contraction. The bank's NIM fell to 2.91% from 2.98% in the previous quarter. This decline, although modest, underscores the challenging interest rate environment that banks are currently navigating.

Industry-wide Trend

Bank of Baroda's actions mirror a broader trend in the banking sector. Canara Bank, another major public sector bank, also reduced its NBFC loans by ₹12,000 crore, including exposure to a large central PSU. Both banks have prioritized margin protection over maintaining the size of their loan books.

Corporate Bond Market Benefiting

As banks tighten their corporate lending, the corporate bond market has seen increased activity. Corporate bond issuances reached a four-year high of ₹3.27 lakh crore in the June quarter. This surge indicates that companies are increasingly turning to the bond market as an alternative funding source, attracted by the prospect of lower rates.

Outlook

The strategic reduction in corporate loans by Bank of Baroda reflects the bank's proactive approach to managing its balance sheet in a challenging economic environment. While this move may impact the bank's loan growth in the short term, it demonstrates a focus on maintaining profitability and financial stability. As the banking sector continues to navigate through these challenges, it will be crucial to monitor how these strategies affect long-term growth and market dynamics.