Banks margin pressure to continue

Banks margin pressure to continue

Bank of Baroda (Mcap - ₹1,14,831 crore) – Unanticipated margin pressure impacted valuation

• Bank of Baroda delivered a subdued performance in Q4FY25, marked by sluggish core profitability amid margin compression.
• NII declined 3.5% QoQ to ₹11,020 crore, weighed down by continued pressure on margins.
• Global NIM compressed 8 bps QoQ to 2.86%, as yields on advances fell 14 bps QoQ to 8.21% while cost of funds remained elevated, inching up 4 bps to 5.12%.
• Gross advances rose 12.8% YoY (4.9% QoQ) to ₹12,30,461 crore, driven by continued robust growth in retail loans (19.4% YoY), agriculture (14.2% YoY), and MSME (14.2% YoY), while corporate advances increased by a modest 8.6% YoY.
• Asset quality remained broadly stable; however, credit cost inched up to 44 bps (vs 30 bps Q3FY25) due to higher provisioning for NPAs at ₹1,297 crore.
• Management remains focused on sustaining strong asset quality, optimizing deposit cost, and accelerating retail and MSME growth to rebalance loan mix toward RAM (~66% in 3 years).
• NIMs may see further pressure in Q1FY26 but is expected to recover by 2HFY26 as deposits repricing kicks in. Treasury gains and recovery from written-off accounts are expected to support earnings trajectory.

State Bank of India (Mcap - ₹6,90,007 lakh crore, Buy) – Steady performance

• SBI reported a mixed performance in Q4FY25, with other income aiding earnings and higher write-offs supporting improvement in GNPA.
• Moderation was seen in business growth across both advances and deposits. Credit growth reported at 12.4% YoY (vs guidance of 14-16%), driven by MSME, agri, and retail segments, while corporate growth was slightly slower.
• Asset quality stayed robust with slippages down 4 bps QoQ at ~55 bps, GNPA down 25 bps QoQ to 1.82% (aided by higher write-offs), and NNPA down 6 bps to 0.47%.
• Margins saw a 3 bps QoQ erosion to 3.09%, driven by rate cuts and higher deposit cost.
• Given corporate pipeline of ₹3.4 lakh crore, signs of revival in Xpress credit and huge customer base, management targets credit growth at 12–13% for FY26E. While some NIM pressure is expected from rate cut, ~29% of loan book is repo-linked, while ~70% is MCLR and fixed-rate, seems to limit the impact. RoA is expected to be steady at ~1% and NIMs near 3%.

Kotak Bank(Mcap - ₹4,19,620 crore, Buy)–balancing growth with tactical play to protect margins”

• Kotak Mahindra Bank reported weak performance with continued moderation in business growth though asset quality was maintained.
• Business growth moderated with advances rising 13.5% YoY, despite acquisition of portfolio from Standard Chartered.
• NIM improved sequentially to 4.97% (vs. 4.93% in Q3FY25) aided by SA rate cuts and strong CA balances.
• Credit costs moderated to 64 bps in Q4FY25 (vs 68 bps in Q3FY25), with signs of stabilization in personal loans and credit cards although MFI stress remained elevated.  
  Management expects credit growth at ~1.5–2x of nominal GDP in medium term, led by SME and revival in unsecured retail post embargo. While levers including - SA rate tweaks, TD repricing, and alteration in asset mix is to be utilized, margins impact is estimated at 10-15 bps given ~60% of loans are linked to EBLR.
• We expect RoA to broadly remain at ~2-2.2% level, supported by stable credit costs and improving asset quality, though MFI stress may persist short term.