Bank of Baroda NMC settlement clears overhang as loan growth and asset quality hold

Investment View and Valuation

In its July 27, 2026 result update, ICICI Securities retained its BUY rating on Bank of Baroda. The broker views the bank’s underlying business momentum and asset quality as healthy, while recognising that the one-off settlement of legacy NMC Group litigation will weigh on reported FY27 profitability.

ICICI Securities believes the recent correction in the share price has largely priced in the settlement and the expected credit-loss framework transition. It reduced its target price to Rs 300 from Rs 325, valuing Bank of Baroda at about 0.9 times FY28E adjusted book value.

Q1FY27 Business Performance

Bank of Baroda reported mixed Q1FY27 performance. Global advances rose 17.4 per cent year-on-year but declined 0.9 per cent sequentially to Rs 14,16,898 crore. Growth was broad-based across organic retail, agriculture, MSME and corporate lending.

The sequential decline in advances reflected the bank’s deliberate run-off of finely priced corporate exposures while it seeks more prudent asset selection and pricing. Total deposits increased 13.8 per cent year-on-year to Rs 16,33,559 crore, although they also fell 0.9 per cent sequentially. Domestic deposits rose 14.7 per cent, CASA deposits grew 10 per cent and the CASA ratio declined 118 basis points sequentially to 37.7 per cent.

Net Interest Income and Profitability

Q1FY27 net interest income grew 9.5 per cent year-on-year to Rs 12,525 crore and was broadly flat sequentially. Global net interest margin declined 12 basis points sequentially to 2.77 per cent, owing to repo-rate transmission and a higher mix of lower-margin international business. This was partly offset by a 12-basis-point fall in the cost of deposits to 4.66 per cent.

Interest on income-tax refunds was around Rs 370 crore. Management said core margins were broadly stable after adjusting for this income. Other income declined 25.8 per cent year-on-year amid weaker fee income and lower treasury gains. Pre-provision profit was Rs 8,127 crore, down 1.3 per cent year-on-year and 10.4 per cent sequentially.

NMC Settlement and Reported Earnings

Reported Q1FY27 profit after tax fell 71.9 per cent year-on-year to Rs 1,278 crore because the bank fully absorbed a US$600 million NMC settlement during the quarter. Excluding the exceptional item, adjusted profit after tax was Rs 5,528 crore and return on assets was 1.1 per cent.

Management stated that the July 1, 2026 settlement provides closure to the long-running cross-border litigation, with claims withdrawn in the Abu Dhabi Global Market Court and UK Court. Recovery proceedings against the principal individual will continue. The bank did not use its Rs 2,500 crore floating-provision buffer for the settlement.

Asset Quality and Management Guidance

Asset quality remained benign. Gross and net NPAs were 1.99 per cent and 0.5 per cent, respectively. The slippage ratio was 0.91 per cent, credit cost was 29 basis points and collection efficiency excluding agriculture improved to 99.2 per cent.

Management retained its FY27 guidance of 12–14 per cent loan growth, 10–12 per cent deposit growth and a 2.75–2.95 per cent net interest margin. It expects return on assets above 1 per cent during Q2–Q4FY27.

Expected Credit-Loss Framework Transition

Management estimates that the transition to the expected credit-loss framework will have a gross impact of around Rs 12,000 crore, equivalent to 110 basis points of CRAR. The transition is also expected to add 15–20 basis points to steady-state credit cost.

Broker Estimates and Key Risks

The key risks identified by ICICI Securities are:

• An adverse change in the business mix that dilutes margins.
• Slower-than-anticipated business growth.