Bank of Baroda second after SBI
The Bank of Baroda is now the best-placed bank after the State Bank of India within the state-owned banks, stated Morgan Stanley. The latest research report, submitted by Rahul Gupta of Morgan Stanley, had upgraded that Bank of Baroda to overweight with a target price of Rs. 110 per share.
The balance sheet of Bank of Baroda’s has improved drastically over the last few quarters, and the margin of safety is the best quality among the state-owned banks. Morgan Stanley says he expects Bank of Baroda earnings to improve slowly over the corporate NPL cycle turns, which would drive higher profits in FY22 and onwards. The current valuations at 0.5x FY22 price (ROE) as the ROE is seen to be improving at about 11% for FY23. It was said to be a very difficult state for FY21 for non-SBI state-owned banks. However, Morgan Stanley sees moderation coming ahead as the corporate Net performing loan cycle turns.
FY22 would definitely see a tussle between the higher restructured loans and the lower NPLs. The credit costs are expected to moderate out in FY22, and to what extent would depend on the duration of the current pandemic. The credit cost to moderate the FY22 given lower to corporate NPLs moderation in retail slippages and modified ECLGS lending schemes.
Sanjiv Chadha, the MD and CEO of Bank of Baroda, stated that “The bank shifted to the new tax regime which lowers the tax rate for the bank and had we not opted for new tax regime our net profit would have been over Rs 4000 cr for FY21 and the loss was due to shifting to the new tax regime.
Believe credit quality for the corporate sector should improve. Chadha expects a reduction in credit cost for the corporate sector to offset a rise in MSME and retail sector; the impact on the large corporate segment will be less in the second wave and sees overall growth in line with the industry at 7-10% YoY. Board approved raising additional capital of Rs 5,000 cr, which includes Rs 2,000 cr via shares, QIP and the rest via AT1 and Tier II bonds.”