Bad loans & loss yet BoB jumps 24%: Why is clean up impressive

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26 Aug, 2025 12:21

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Quantum of loss that Bank of Baroda incurred in December quarter is quite high yet investors are buying the stock instead of dumping it. The government-run bank posted a massive loss of Rs 3342 crore in September-December quarter against a net profit of Rs 334 crore in the year ago period. Its asset quality worsened with gross non-performing assets at Rs 38934.1 crore in Q3, up 64.2 percent from Rs 23710.33 crore on a sequential basis. The bank's provision climbed by a whopping 388.4 percent to Rs 6164.55 crore against Rs 1262.25 crore (YoY).

However, shares of BoB surged 24 percent intraday on Monday. So, why the hurry to buy it?

The market is quite pleased with the new MD's new clean up act. Managing Director, PS Jaykumar, first from private sector to head a PSU bank has cleaned up all the bad loan at one go and expects to return to FY14 profit levels next year. In an interview to CNBC-TV18, he says the bank needs no capital dilution for the next 18-24 months. Jaykumar is confident that with monetising non-core assets and gains in the foreign currency the bank may easily support a 20 percent growth next year without dilution of capital. Strengthening NPL recovery teams/processes, rebalancing its loan mix by increasing share of better rated corporate loans as well as retail loans, and scaling-up its digital platform are few initiatives it is taking to spearhead its growth forward.

This is boosting investor confidence and most analysts are bullish on the stock.

CLSA has an outperform rating but reduced target price to Rs 130, from Rs 190 per share. The brokerage expects asset quality to stabilise ahead of its peers. It feels the management’s plans to rebalance its loan-portfolio and improve return on equity (ROE) look promising and a better capitalised balance sheet will help. "BoB reported a sharp rise in slippage in Q3 dominated by the steel, infrastructure, and textile sectors. Slippage was high because the bank downgraded all RBI directed loans and other weak cases to non-performing loans (NPLs), unlike most others which have spread the RBI directed downgrades over Q3-Q4. As a result, BoB’s gross NPL ratio rose to 9.7 percent of loans and increased provisioning pushed the bank into losses," it says in a report.

Bank of America Merill Lynch also reiterates a buy rating but slashed target price by 19 percent to Rs 137 per share. It feels likely change in banks; strategy with the new head could lead to stronger operating growth and a possible re-rating for the stock. According to it, BoB's fresh NPL formation could decline from next quarter given it has done the entire asset quality review (AQR) related NPL.

Edelweiss maintains buy rating with a target price of Rs 137. It feels BoB will still generate RoE of 9-10 percent.

Credit Suisse reteirates neutral rating and cuts earnings per share (EPS) by 31-37 percent. The brokerage has also trimmed target price to Rs 124 per share.

At 11:41 hrs Bank Of Baroda was quoting at Rs 134.80, up Rs 20.45, or 17.88 percent on the BSE.