Increasing global macro uncertainties and developments at home, including expectations of a few more rate cuts, may be prompting Debadatta Chand to err on the side of caution. This explains why the managing director and chief executive officer of India’s second largest state-owned bank did not want to guide on net interest margins and yield on loans for FY26.
However he is confident that 12-13 percent is a likely target for the bank in the ongoing fiscal. Speaking exclusively to Moneycontrol, the Bank of Baroda chief said given the extremely comfortable asset quality position the bank finds itself in at a 13-year best in FY25, he is not averse to aspiring to higher-than-usual growth in select retail pockets such as personal loans, auto loans and loans against property.
Edited excerpts:
What’s your guidance on the growth front?
FY26 is an inflection point because the rate trajectory is going downward, and the liquidity scenario has changed. We have held back our guidance to the June FY26 quarter. As liquidity has turned positive, it allowed us to sustain the growth guidance (for FY25) and there is an opportunity for an upside to this. That said, we are more bullish or optimistic compared to peers.
What about asset quality and return ratios?
Return on assets in FY25 was almost at the same level as FY24 at 1.16 percent, and it is important for us to sustain the ROA and ROE (return on equity). Margins will depend upon the market condition. If we are targeting a growth of 12-13 percent, with a ROA of more than 1 percent, then operating profit would also be on an upward trajectory. The bank has a stable business model, which has generated 1.16 percent of ROA in the last three years.
Will lower non-performing asset (NPA) numbers allow you to take a bit more risk on business?
We have the best asset quality in 13 years. The slippage for this year has been lower than that of last year. Year-on-year recovery is higher and that is why gross NPA is trending downward. The bank can take risks on the business front at the current juncture. That said, the current underwriting (standards) of the bank is top notch. Our domestic asset growth was 13.7 percent in FY25 and we run a larger international book compared to many other banks. Global business growth has come at almost 13 percent.
Given this opportunity, the bank can take more risks on the books in personal loans, non-mortgage-based retail loans, loans against property, auto loans... We are prepared for this, and with the retail book growing by almost 20 percent for the last many quarters, there is an opportunity to grow further.
The corporate book will grow at 10 percent, and we will try to grow 2 points higher than the nominal growth rate of 9 percent.
Given the international uncertainties, would you want to relook at this book?
On the international front, we have done two things for the last three years—rationalise a few branches and grow the book. The international book has almost doubled from Rs 1.05 lakh crore to almost Rs 2.11 lakh crore as of FY25. International business gives a huge opportunity, as the rate cycle started climbing upwards ahead of India, though now we are seeing the reverse. We will grow the international book at around 10-15 percent , in line with domestic growth.
What is your projection on cost of funds and yields?
In December last year, we said that the NIM (net interest margin) is going to be between 3 and 3.10 percent. We reduced our guidance a quarter ago and the Q4FY25 margin was in line with this. At that time, we saw the cost of deposit going up. Even at 3.02 percent overall margin, domestic NIM is 3.18 percent. If we maintain our margin above 3 percent, that is within our guidance. We do not look at cost structure and asset pricing differently. I think in Q1FY26 margin will still be under some pressure, but it will pick up in Q2 and Q3. By Q4 we may maintain the full-year margin at the level we saw last year.
Do you see an improvement in the quality of retail assets?
For a bank like us, the real impact of retail asset quality was not much felt; we had very little impact. From an economic perspective, at the high end of the curve, the delinquency has to be high if factors like (household) leverage is breached. Going forward, with the expectation of the rate of interest going down and the impact of a 50-basis point (bp) rate cut passed on, I think the quality of retail loans will improve. Delinquencies have to be low.
With systemic liquidity in surplus, do we still need more rate cuts?
The rates will depend on multiple factors. Our house view is that possibly till March 2026, there could be two cuts of 50 bps. That means 50 bps cut by March 2026. Liquidity in the system will determine if banks can really reduce the cost of deposit and pricing of loan assets, so that there is demand coming back into the market sizeably larger than last year. With the liquidity back into the system, we can really upsize our growth.
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