The bank reported muted business growth in Q1FY27, with advances and deposits both declining 0.9% sequentially. Domestic retail loans remained resilient, growing 18.5% year-on-year despite weakness in overall domestic advances. Nomura expects a sharper decline in net interest margins due to lower income from tax refund-related interest. The brokerage retained its “Neutral” rating, citing the settlement impact and uncertainty around provisioning. |
State-owned lender Bank of Baroda’s profitability in the June quarter could come under pressure due to its decision to settle claims related to the collapse of UAE-based healthcare company NMC Health, even as the bank reported muted business growth during the quarter.
The bank’s FY26 annual report had continued to classify the matter as a contingent liability and had reiterated its intention to mount a robust legal defence. Legal and related expenses had also increased by around 90% year-on-year to Rs 820 crore during FY26, reflecting costs associated with the litigation, Nomura said in a report.
The bank decided to settle litigation related to the collapse of NMC Health, once the UAE’s largest private hospital operator, which went into administration in 2020 after approximately $6.6 billion of undisclosed debt was uncovered.
Administrators of NMC had filed claims worth around $5.4 billion, alleging that Bank of Baroda facilitated the fraud through anti-money laundering and know-your-customer lapses. The bank had consistently denied the allegations and maintained a strong legal defence, with the trial in the Abu Dhabi Global Market commencing in March 2026.
However, Bank of Baroda has now agreed to settle the case for $600 million, equivalent to around Rs 5,700 crore, without any admission of liability or wrongdoing. According to Nomura, the settlement amount represents around 4% of the bank’s FY26 net worth and is equivalent to nearly one quarter’s profit.
The speed of the shift from a robust defence to a settlement within a single quarter is surprising, the brokerage said, adding that it does not believe the bank has already provided for the settlement and expects the entire impact to be recognised in the June quarter.
The bank’s overall loan growth remained soft in the quarter ended June 2026, with advances declining 0.9% sequentially, although they grew 17.4% year-on-year. The moderation was led by domestic advances, which fell 1.5% sequentially despite growing 16.1% year-on-year, while overseas advances increased 2.1% sequentially and 23.3% annually, according to an analyst report by Nomura.
Domestic retail advances continued to exhibit resilience, growing 2.4% quarter-on-quarter and 18.5% year-on-year.
Deposit growth
Deposit growth also remained subdued, declining 0.9% sequentially while rising 13.8% year-on-year. Overseas deposits grew 2.0% sequentially and 8.9% annually, whereas domestic deposits contracted 1.4% from the previous quarter despite registering 14.7% annual growth. The bank’s domestic loan-to-deposit ratio remained largely stable at 83.3%.
Nomura said net interest margins (NIMs) would remain a key monitorable for the lender in the June quarter. While Bank of Baroda outperformed its public sector peers on NIMs in the March quarter, the brokerage noted that interest income from income tax refunds, which it estimated contributed around 16 basis points to margins in the previous quarter, is likely to decline significantly in the current quarter, potentially resulting in a sharper fall in margins.
Nomura maintained its “Neutral” rating on Bank of Baroda, stating that while the stock has already corrected by around 4%, reflecting the settlement amount relative to the bank’s net worth, investors will closely monitor margin performance and provisioning trends in the upcoming quarterly results.
