Bank of Maharashtra targets profitable growth as asset quality remains strong

Investment View and Valuation

Ajcon Global Services Limited retains a BUY rating on Bank of Maharashtra and raises its target price to Rs 95.90 from Rs 88.56. The earlier target, based on Q4 FY26 performance, was achieved on June 15, 2026. The revised valuation applies a multiple of 2.25x to the bank’s Q1 FY27 book value of Rs 42.62 per share, with the valuation multiple unchanged.

The positive view is supported by industry-leading loan growth, a healthy CASA franchise, strong profitability, best-in-class asset quality, granular branch-led growth, prudent funding and sustained earnings visibility.

Q1 FY27 Financial and Business Performance

The loan portfolio comprised 36% corporate and other advances, 29% retail, 18% MSME, 14% agriculture and 3% overseas advances. RAM advances, comprising retail, agriculture and MSME lending, remained a significant part of the portfolio at 62.89% of gross advances.

Margins, CASA and Profitability

Profitability metrics remained strong, although margins moderated. Q1 FY27 net interest margin was 3.79%, compared with 3.90% in FY26 and 4.00% in FY25. CASA stood at 49.00%, while the credit-to-deposit ratio was elevated at 88.82%.

Management attributed yield pressure mainly to the lagged reset of MCLR-linked loans following earlier policy-rate cuts. Domestic loan yields declined by only 13 basis points quarter-on-quarter, while the inclusion of lower-yielding GIFT IBU assets contributed to the larger reported yield decline.

Management expects disciplined pricing, limited scope for further rate cuts and branch-level profitability monitoring to support yields and margins. The bank has introduced profitability dashboards that allow branch and zonal managers to monitor incremental business, pricing and yield metrics in real time.

Resilient Asset Quality

Asset quality remained resilient, with gross NPA and net NPA stable at 1.45% and 0.13%, respectively. Provision coverage, including technically written-off accounts, was 98.55%. Overall loan-book stress declined by 140 basis points year-on-year to 3.18%.

Q1 FY27 fresh slippages were Rs 888 crore, while gross NPAs closed at Rs 4,434 crore. Management stated that the marginal quarter-on-quarter increase in retail and MSME gross NPAs did not indicate wider stress. The bank cited strict underwriting standards, exclusion of sub-prime borrowers with CIBIL scores below 681, and a focus on prime and super-prime borrowers.

FY27 Management Guidance and Growth Plans

Management plans to add around 200 branches annually and expects digital engagement and deposit products to support liability growth. Funding is intended to come from core deposits and low-cost refinance rather than costly bulk deposits or fresh certificates of deposit. The bank has Rs 19,000 crore of refinance and plans to raise Rs 5,000 crore of capital.

Provisioning Buffers and ECL Transition

Provisioning buffers and the transition to the Expected Credit Loss framework remain important considerations. Bank of Maharashtra holds Rs 1,050 crore of legacy COVID-related provisions. Management estimates the ECL impact at about Rs 2,500 crore, to be absorbed through net worth over four years, or approximately Rs 125 crore per quarter.

Under ECLGS, the bank sanctioned Rs 4,500 crore, representing 65% of the eligible Rs 6,700 crore portfolio, and disbursed Rs 3,560 crore, or 82% of sanctions. MSMEs accounted for nearly Rs 2,700 crore of disbursements.

Key Monitorables

• Pressure on net interest margins.
• The elevated credit-to-deposit ratio.
• Execution on deposit mobilisation.
• Asset-quality trends in retail and MSME portfolios.
• The final ECL framework and the associated provisioning requirement.