Bank of Baroda Performance Analysis, Comparison with PNB, SBI & Private Banks

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Bank of Baroda, a government-owned bank, achieved a market capitalization of over Rs 1 trillion on June 19, making it the second PSU (public sector undertaking) bank to accomplish this after State Bank of India. BoB performed better than other banks in terms of growth and the quality of its assets. For instance, its loans increased by 18.5% compared to the previous year, reaching Rs 9.69 trillion by the end of March. In comparison, Punjab National Bank and HDFC Bank saw their loans grow by 13% and 17% respectively, reaching Rs 8.84 trillion and Rs 16 trillion by March 31.

Not only did BoB experience growth in loans, but it also saw a 15.1% increase in deposits, reaching Rs 12.04 trillion by the end of March. This was the highest deposit growth rate among similar government-owned banks. BoB’s net interest margin also improved by 28 basis points, reaching 3.31%, slightly lower than State Bank of India’s 3.37%.

BoB’s growth was partially driven by its application called BoB World, which attracted 20 million customers in just two years. According to the bank’s Chief Digital Officer Akhil Handa, BoB provided around Rs 70,000 crore in digital loans during the fiscal year 2023. For the next fiscal year, the bank aims to provide Rs 90,000 crore in digital loans, with about 30% of them being fully digital end-to-end loans.

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In terms of asset quality, BoB’s gross and net non-performing asset (GNPA & NNPA) ratios improved to 3.79% and 0.89% respectively by the end of March. The bank’s Managing Director and CEO, Sanjiv Chadha, mentioned that asset quality is expected to further improve in the fiscal year 2024. Although BoB is the second PSU bank to reach the Rs 1 trillion mark, several private sector banks have already surpassed it. HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank are examples of private banks with market capitalizations exceeding Rs 1 trillion. HDFC Bank is the most valued bank with a market capitalization of Rs 9.14 trillion as of June 21, followed by ICICI Bank at Rs 6.46 trillion, Kotak Mahindra Bank at Rs 3.66 trillion, and Axis Bank at Rs 2.97 trillion.

Private banks have historically shown better growth rates, which is why they command higher valuations. Additionally, RoA (Return on Assets) plays a crucial role in the banking sector. Most large private banks have RoAs around 2%, whereas PSU banks have RoAs below 1%.

One reason for this difference, according to Pankaj Pandey, a research head at ICICI Securities, is that risk assessment in PSU banks has been weaker compared to the private sector, resulting in higher provisions and credit costs that affect profitability. This leads to the government having to recapitalize PSU banks, which dilutes their RoEs (Return on Equity) and hampers their effectiveness.

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Ajit Kabi, a banking analyst at LKP Securities, stated that PSU banks faced a harsher asset quality cycle than private banks in the past, particularly in their wholesale credit book. However, improvements in asset quality have rejuvenated growth and led to a re-rating of PSU banks. Bank of Baroda has been a leader among PSU banks, showing early recovery in credit quality and strong balance sheet growth. Nevertheless, PSU banks still have to prove themselves compared to large private banks in the future.

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