Bank of Baroda has received new credit ratings from S&P Global Ratings, marking a significant development for the public sector bank. The rating agency assigned BBB long-term and A-2 short-term issuer credit ratings to the bank on February 27, 2026, with a stable outlook reflecting confidence in the institution's financial strength and government backing.

Rating Details and Government Support

The credit ratings are underpinned by S&P's assessment of a very high likelihood that the government of India would provide Bank of Baroda with timely and sufficient extraordinary support in the event of financial distress. This view is based on the bank's very important role as a public sector bank in promoting financial inclusion through increased access to deposits and lending, combined with very strong links to the government via majority ownership and control.

Financial Strengths and Market Position

Bank of Baroda maintains a sizable franchise across India, ranking among the 10 largest players with a meaningful market share of 5%-6% of loans and deposits in the fragmented banking industry. The bank's credit profile is supported by its well-established franchise, solid deposit base backed by high customer confidence owing to government ownership, and ample liquidity position.

S&P forecasts the bank's return on average assets (ROAA) at 1.00%-1.20% over the next two years, comparable to several public sector banks though lagging major private sector players. The bank's focus on the higher-yielding retail, agriculture, and micro, small, and midsize enterprise (RAM) segment will predominantly support its net interest margin, though this could be somewhat tempered by thinner margins in international business.

Capital and Growth Projections

The rating agency expects Bank of Baroda to maintain its risk-adjusted capital ratio above 7.00% over the next 12-24 months amid above-average credit growth. This will be mainly supported by steady internal capital generation. The board has approved an equity capital raising plan worth INR 85 billion via qualified institutional placement by fiscal 2028, which if executed would further bolster the bank's capitalization.

Asset Quality and Risk Management

S&P expects Bank of Baroda's asset quality to remain largely stable over the next two years amid favorable operating conditions in India. The bank's adequate risk management, solid recoveries, and upgradation and write-offs of bad loans should keep the gross nonperforming loan ratio largely on an improving trajectory. The rating agency estimates credit costs at 0.60%-0.70% of total loans over fiscals 2026-2028, with the bank maintaining a floating provision of about INR 10 billion towards expected credit loss provisioning.

Funding Profile and Liquidity Position

As a government-owned bank, Bank of Baroda benefits from higher depositor confidence, with its deposit base primarily composed of granular retail deposits and stable, relationship-driven public-sector and large corporate deposits. Current and savings account deposits contribute about 39.80% of the bank's total deposits, higher than several domestic peers. The bank's loan-to-deposit ratio stands at 86% as of end December 2025, moderately weaker than the industry average mainly due to higher loans in its international business.

Outlook and Rating Scenarios

The stable rating outlook reflects S&P's expectation that Bank of Baroda will continue to benefit from its established franchise and maintain adequate risk management over the next two years. The agency expects capitalization to remain supported by steady internal capital generation amid above-average credit growth and a solid funding and liquidity profile. Potential rating changes would primarily depend on changes to India's sovereign rating or material deterioration in the bank's risk management and asset quality.

Bank of Baroda has received a significant credit rating boost with ICRA assigning an AAA (Stable) rating to its Long Term Green Infrastructure Bonds worth Rs. 10,000.00 crore on February 25, 2026. The rating agency also reaffirmed existing ratings across the bank's various debt instruments, reflecting the institution's strong financial position and sovereign backing.

Rating Action Summary

The comprehensive rating action covers instruments totaling Rs. 16,500.00 crore, marking a substantial increase from the previous rated amount of Rs. 6,950.00 crore. The rating agency has also withdrawn the rating for Basel III Tier II bonds worth Rs. 450.00 crore following their complete redemption.

Strong Fundamentals Drive Rating

The ratings continue to factor in Bank of Baroda's sovereign ownership, with the Government of India maintaining a 63.97% equity stake as of December 31, 2025. The bank holds the distinction of being the second largest public sector bank and fourth largest bank in the Indian financial system, commanding a market share of 6.6% in advances and 6.5% in total deposits.

Robust Capital Position

The bank demonstrates strong capitalisation with a CET I ratio of 12.45% and Tier I ratio of 13.10% as of December 31, 2025, excluding 9M FY2026 profit. The solvency level improved to 6.3% from 6.9% in March 2025, supported by high provision cover for stressed assets and steady capital accretion.

Asset Quality Improvements

The bank has demonstrated consistent improvement in asset quality metrics, with gross NPA percentage declining to 2.04% as of December 31, 2025, from 2.43% a year earlier. Net NPA percentage stood at 0.57%, reflecting effective recovery mechanisms and controlled fresh slippage generation at an annualised rate of 1.08% in 9M FY2026.

Superior Liquidity Profile

Bank of Baroda maintains superior liquidity with a daily average liquidity coverage ratio of 126.04% in Q3 FY2026, well above the regulatory requirement of 100%. The bank benefits from a competitive cost of interest-bearing funds at 4.82% in 9M FY2026 and a healthy CASA ratio of 38.45% in domestic deposits.

Outlook and Challenges

The Stable outlook reflects expectations of steady asset quality, internal capital generation, and strong liability profile. However, ICRA notes that net interest margins moderated in 9M FY2026, though they are expected to stabilise and gradually improve from Q1 FY2027. The bank's ability to control fresh slippages and maintain lower credit provisions remains crucial for sustained profitability.