Why Bank of Baroda Share Price is Rising

India's PSU banks have witnessed a stellar performance so far this year. During the first six months of the current financial year, the sector reported revenue of about Rs 685 bn.

The share price of these banks has also followed suit. The Nifty PSU Bank index is up 30% so far with shares of Punjab National Bank, Central Bank of India, and Indian Bank up 58%, 53% and 41%, respectively.

Bank of Baroda (BoB) shares have also risen 24% with the stock recently touching its 52-week high.

The bank has been in the news for several reasons. Let's find out what is driving the rally.

#1 Bank Raises Stake in ONDC

Shares of the bank rose today to touch their 52-week high after the bank reported that it has raised its stake in Open Network for Digital Commerce (ONDC) to 8.51% from 5.56% for a sum of Rs 300 m.

Post investment, Bank of Baroda holds an 8.51% stake in ONDC by way of allotment of additional 3 m fully paid-up equity shares of face value of Rs 100 each.

Equity ownership of ONDC is aimed at providing an open public digital infrastructure to develop and transform the Indian digital commerce ecosystem for both goods and services.

ONDC is engaged in creating an open public digital infrastructure to develop and transform the Indian digital commerce ecosystem for both goods and services and to expand alternatives for both buyers and sellers to engage in the digital commerce space.

#2 Bank to Raise Up to Rs 25 bn via Basel III Compliant Bonds

Shares of the bank rose also rose on 15 December after it announced that it has approved plans to raise up to Rs 25 bn by issuing Basel III compliant bonds.

In an exchange filing, the bank said that its Capital Raising Committee approved raising of tranche I of the bonds with a base issue size of Rs 10 bn with a greenshoe option to retain oversubscription up to Rs 15 bn.

Under Basel-III capital regulations, banks globally need to improve and strengthen their capital planning processes.

The bank's capital adequacy ratio stands at 15.3% against the regulatory requirement of 12%.

Better Asset Quality, Higher Income Drive Growth

Bank of Baroda (BoB) shares have risen not only in the last month but also over the last year on the bank of better-than-expected quarterly results.

The bank's net profit rose by 28.4% YoY to Rs 42.5 bn for the September 2023 quarter on account of higher income.

It also reported an 88% YoY jump in net profit for the June 2023 quarter on account of better asset quality.

The bank's management has revised its guidance for NIM to 3.15% for FY24 (plus or minus five basis points) from earlier 3.3%. The revision in NIM guidance is due to a change in cost metrics (rise in cost of funds).

It also said that while a lot of concern has been expressed in the system about the growth in unsecured loans, BoB's portfolio (personal loan) is sound, and the stress is low.

As a prudent step, the bank will carry out a portfolio review and scale down the pace of loan growth in the personal loans segment to around 30%.

The bank's asset quality profile has improved, with gross NPAs declining to 3.32% in the September quarter from 5.31% a year ago.

It declared one airline exposure (Go First) as a non-performing asset (NPA) and made a 100% provision. It was already a stressed account and turned NPA in Q2.

Net NPAs declined from 1.16% in September 2022 to 0.76% in September 2023.

Bank of Baroda increased its provisions for non-performing assets (NPAs) and bad debt during the quarter to Rs 22.9 bn from Rs 16.5 bn in the year-ago period.

What next?

Going forward, the bank is focused on growing its retail business aggressively and aims to increase retail share from 27% to 35% in the next 2-3 years.

It also expects to continue growing above the industry average in retail and maintain return on assets above 1%.

Bank of Baroda has introduced new products to boost its CASA (current and savings accounts), including BOB Lite, BOB Bro, BOB Parivaar Family Account, and BOB SDP Account.

With respect to loan growth, it expects its overall loan book to grow above 15% with corporate growth at 12-13%, retail growth more than 20%, and international growth aligning with domestic growth.

Last month, the Reserve Bank of India (RBI) had put curbs on-boarding new customers on 'bob World' due to supervisory concerns over the manner of onboarding customers.

The bank is taking corrective steps to meet the regulatory concerns.

How Bank of Baroda Share Price has Performed Recently

In the past month, shares of the bank have gained 17.6%.

The stock has gained 21.1% in the past six months and around 30% in the year gone by.

The stock touched its 52-week high of Rs 233.75 today on 27 December 2023 and a 52-week low of Rs 146.5 on 2 February 2023.

At the current price, the company trades at a price to book value multiple of 1.09x.

About Bank of Baroda

Bank of Baroda is the third largest PSU bank in the country with a 63.97% stake by the Government of India.

The bank is engaged in providing various services, such as personal banking, corporate banking, international banking, small and medium enterprise (SME) banking, rural banking, non-resident Indian (NRI) services and treasury services.

The bank operates a network of 8,168 branches in India and 94 branches overseas and 11,475 ATMs located across India with the majority (35%) branches operating in rural areas.

To know more about the company, check out Bank of Baroda's fact sheet and quarterly results.

You can also compare Bank of Baroda with its peers.

Bank of Baroda vs CSB Bank

Bank of Baroda vs South Indian Bank

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