Bank of Baroda reported a 48% drop in June quarter profit to ₹1,783 crore, largely due to a one-time settlement payment in the NMC Group case. While this charge impacted quarterly earnings, the bank maintained its 12-14% loan growth target and stable capital position.
Detailed Coverage
Bank of Baroda reported a significant decline in its net profit for the June quarter, primarily driven by a ₹5,680-crore out-of-court settlement related to the UAE-based NMC Group. The bank's consolidated net profit stood at ₹1,783 crore, representing a 48% decrease compared to the previous year. Following the announcement, the bank's stock price saw a 1% dip on July 27.
Impact of the NMC Group Settlement
The settlement, finalized through the bank’s Abu Dhabi branch, resolves a long-standing legal dispute that spanned jurisdictions including the Abu Dhabi Global Market and the United Kingdom. Management, led by CEO and Managing Director Debadatta Chand, described the decision as commercially prudent to clear long-standing uncertainty. The bank clarified that this payment does not serve as an admission of liability and noted that it did not utilize funds previously set aside for transitioning to expected credit loss-based accounting. These earmarked funds currently remain at approximately ₹12,500 crore.
Operational Performance and Margin Trends
Beyond the one-time charge, the bank’s core operations showed resilience. Net interest income, which is the money earned from core lending activities, grew by nearly 10% to ₹12,524 crore. This growth was supported by a 17% increase in total advances. However, profitability was influenced by a slight compression in global net interest margins, which fell to 2.77% from 2.91% a year ago. The bank continues to target net interest margins in the range of 2.75% to 2.95% for the current fiscal year.
Asset Quality and Capital Strategy
In terms of asset quality, the bank reported that fresh slippages—or new bad loans—dropped to ₹3,422 crore, down from ₹3,686 crore in the same period last year. Despite this, the gross non-performing assets ratio showed a minor rise to 1.99%, compared to 1.89% in the preceding quarter. The bank remains well-capitalized with a capital adequacy ratio of 16.30%. Looking ahead, the institution maintains a loan growth target of 12-14% and is actively looking to boost dollar inflows through channels like external commercial borrowings and foreign currency non-resident deposits to reach a goal of 20% international advances in its portfolio.
Investors will likely track the bank's progress on its capital-raising plans, which include the potential to raise up to ₹8,500 crore in equity capital by FY28 and ₹6,000 crore in tier-2 capital this fiscal year. The bank’s ability to manage its international loan portfolio and stabilize margins against the backdrop of fluctuating credit costs will be the primary monitorables in upcoming quarters.