Bank of Baroda stock performance: What does the recent 10% drop in BoB’s stock signal for investors?

ET Intelligence Group: The stock of Bank of Baroda has lost 10% since Tuesday after the bank reported higher sequential bad loans provisioning, lower net interest income and sustained pressure on net interest margin for the March quarter.

The credit cost increased amid a higher slippage ratio owing to the micro, small, and medium enterprises (MSME) segment. The gross nonperforming asset (NPA) ratio continued to slide to a multi-quarter low. The share of the retail segment in the loan portfolio rose to 30% from 28% a year ago while the bank reported the highest ever net profit for the quarter and full year.

Over the past two months until Tuesday, the stock had gained 27% amid buoyancy in the broader market. However, the bank’s latest quarterly numbers have revealed stress on its MSME book narrowing the stock’s return. MSME lending forms over 13% of the bank’s gross domestic advances. At the end of the March 2025 quarter, the MSME book increased by 14.2% to ₹1,36,377 crore.

Fresh slippages from the MSME segment rose to ₹1,473 crore in the March quarter compared with ₹963 crore in the previous quarter and ₹1,138 crore a year ago. Its contribution to the total domestic slippages at ₹2,871 crore increased to 51.3% from 40.1% a year ago. Despite a spike in MSME slippages, total slippages did not budge much from the year-ago level of ₹2,841 crore helped by lower trend in the agriculture and corporate segments.

In March quarter, the MSME loan book’s nonperforming assets at ₹11,242 crore formed 47.3% of the total domestic NPAs at ₹23,791 crore. In coming quarters, the trend in the MSME portfolio will be crucial and any further increase will add to the pressure on the stock.

The bank continued to show improvement in asset quality. The gross NPA fell to 2.26% in March quarter from 2.43% a quarter ago and 2.92% a year ago. It was the 16th consecutive quarter of sequential fall in the GNPA.The gross domestic advances rose by 13.7% to ₹10.2 lakh crore. The bank expects to accelerate the loan growth by 1-2% in current fiscal year driven by improving liquidity in system and traction in corporate loan book driven by demand from infrastructure and renewable energy segments. Given the falling interest rate scenario, the bank expects 60% of wholesale deposits and around 40% of the retail deposits to reprice in six months. This should support NIMs in second half of fiscal year.At Wednesday’s closing price of ₹224.6, the stock was traded at a price-book (P/B) multiple of around one, similar to the three-year average valuation. While bank expects to grow loan book at a faster clip, the stock may remain range bound in the short term given pressure on the MSME book and expected weakness in NIM in first half of fiscal year.