Bank of Baroda Ltd

NSE:BANKBARODA

Earnings Call Analysis

Bank of Baroda Q1 2024: Stable Profit Amid Strategic Growth

Bank of Baroda posted an 8.1% growth in advances, with domestic advances up by 8.5%. Retail loans surged by 21%, driven by home loans up 14.7% and auto loans up 25%. Operating profit dipped 8.5% due to lower treasury income, while net profit rose 9.5% to INR 4,450 crores. CASA deposits grew 6%, maintaining a 40.62% ratio. With a robust RoA of 1.13% and decreased GNPA to 2.88%, the bank reaffirmed its guidance for FY24, targeting 10-12% deposit growth and 12-14% advance growth.

Company Growth and Strategic Liability Management

The company experienced a robust growth in both deposits and advances during the first quarter of FY '24. Deposits grew by an impressive 8.9%, while advances saw a respectable growth of 8.1%. Notably, the Current Account Savings Account (CASA) ratio remained strong at 40.62%. Management focused on reducing dependence on bulk deposits, with a significant dip observed, aligning with the strategic liability management aimed at maintaining margins and bolstering the bank's capital position【4:0†source】.

Profitability Insights

Despite a dip in operating profit by 8.5% due to changes in treasury income valuation, the bank's net profit after tax increased by 9.5%, reaching INR 4,450 crores. The Return on Assets (ROA) has remained above 1% for eight consecutive quarters, currently standing at 1.13%. Similarly, Return on Equity (ROE) is robust at 17.45%. The company has been successful in maintaining a steady Net Interest Margin (NIM) of 3.18%, despite a slight reduction from the previous quarter【4:0†source】【4:8†source】.

Asset Quality and Risk Management

The bank's asset quality has shown significant improvement with Gross Non-Performing Assets (NPA) reducing from 3.51% to 2.88%. The Net NPA also improved to 0.69%. Furthermore, the provision coverage ratio remains strong at 93.32%, indicating robust risk management practices. Additionally, the credit cost has dramatically improved from 0.70% to 0.07%, showcasing superior asset quality management【4:0†source】【4:8†source】.

Revenue and Segment Performance

The revenue growth was driven by significant improvements in various segments. Retail loans grew by 21%, agriculture loans by 9.1%, and SME loans by 9.8%. Within the retail sector, mortgages and home loans saw increases of 11% and 14.7% respectively, while auto loans surged by 25% and education loans by 18.8%. However, corporate loan growth was subdued at 2.5%, reflecting a strategic decision to prioritize higher-margin segments【4:0†source】.

Future Growth Guidance

Looking forward, the bank maintains confidence in achieving its growth targets. They project deposit growth of 10-12% and advance growth of 12-14% for the coming quarters. This guidance is underpinned by a strong pipeline and ongoing strategic initiatives aimed at maintaining profitability while enhancing the quality of assets【4:1†source】【4:2†source】.

Capital and Liquidity Position

The bank's capital adequacy ratio (CAR) has shown a positive trajectory, improving from 16.31% to 16.82%, with Common Equity Tier 1 (CET1) also rising from 12.54% to 13.02%. Additionally, liquidity coverage remains strong with an LCR of around 138%, ensuring that the bank is well-positioned to meet its short-term obligations【4:6†source】【4:8†source】.

Earnings Call Transcript 2025-Q1

[Phiroza Choksi, executive]

Good evening, everyone, and welcome to the Analyst Meet for Bank of Baroda's results for quarter ended June 30, 2024. Thank you all for joining us.

We have with us today are MD and CEO; Mr. Debadatta Chand, and he's joined by the bank's Executive Directors and our CFO.

We have a brief presentation that we will take you through, followed by opening remarks by Chand sir, and we'll then move to the Q&A session.

Chand sir, over to you for a brief introduction, and then we move to the PPT.

[Debadatta Chand, executive]

Sure, thank you, Phiroza, and good evening to all of who have joined on call. So let me introduce the management team. I'm D Chand, MD and CEO of the bank. I have been interacting with you for quite a while now. So with us, Mr. Lalit Tyagi, he's the Executive Director. He looks after Corporate Credit, International Banking and Treasury apart from a couple of other functions. Then we have with us Mr. Sanjay Mudaliar. He looks after the IT part of it and the retail asset and retail liability and a couple of other platform function. Then we have with us Mr. Lal Singh. He's the Executive Director, looking after the HR, the agri, MSME and also more importantly the recovery part of it. And with us also the new CFO, Mr. Manoj Chayani. This is his first call as far as all of you are concerned.

So with this introduction, over to you, Chayani ji, then I will come back with the comments after the presentation.

[Chayani Sundar, executive]

Thank you, sir.

Good evening, everyone. In fact, it gives me immense pleasure in welcoming you to this analyst call of Bank of Baroda. Let me take you through the highlights of the bank's performance as of 30th June 2024.

Coming to the asset side, if you can see that the asset has been grown, advances portfolio has been grown by 8.1% with domestic advances grown by 8.5%. This growth is a little bit on the muted side as against our guidance; however, as you all know, the first quarter is practically a sluggish quarter. And there are also a consistent focus on the bank to increase the [ RAM ] portfolio further. There are certain low-yielding assets, consciously we have said it. So that's the reason why the growth is 8.1%. Segment-wise, if we say, we are going strong with the retail growth of 21%. Agriculture is around 9.1%. MSME 9.8%. Corporate is up 2.5%.

In the retail portfolio itself, the secured portion that is mortgage as well as home loan, we have grown 11% and 14.7%. Education, we have grown by 18.8%. Auto loan by 25%. And as we said earlier also, we have moderated our growth as far as the personal loan is concerned, and personal loan growth is 39% as of June '24. Next slide, please. Coming to the liability side. As you all know, the liability is a challenge for all the banking industries. And besides that, there are certain external factors also. Further, there is a conscious effort on the part of the bank to reduce the dependency on the bulk deposit. As a result of which, despite of all those things, the deposit has grown by 8.9%. Yes, the point to be noted is that the deposit has been grown by 8.9%, and our advance is grown by 8.1%, which is lesser than the deposit growth.

However, if we look at our CASA, our CASA has grown by 6%, which is better than the peer banks also. And we are continuing our CASA ratio more than 40%, and it is 40.62% as of 30th June. If I look at our credit deposit CD ratio, it is 82%, which is being maintained at that level. Next slide, please. Coming to the profitability metrics. The operating profit was down by 8.5% to INR 7,161. However, here, I would like to mention that this operating profit has been down only because there is a dip in the treasury income due to the newer valuation norms given by the RBI.

Coming to the profit after tax, there is a growth of around 9.5%, and the profit after tax has improved from INR 4,070 crores to INR 4,450 crores. One of the strongest profitability metrics is return on assets. And for last 8 quarters, we are posting return on assets more than 1%. And as of June, return on asset is 1.13%, which is 2 basis points over the Q1 FY '24. Return on equity is almost around 18%. That is 17.45% as of June '24. Coming to some of the key ratios. Yield on advances has improved from 8.40% to 8.55%, 15 bps higher. We are having a tight lead as far as the cost of deposit is concerned. And if you can see the cost of deposit, sequentially, we could manage to maintain at the same level of 5.06 percentage.

Coming to the net interest margin. Our margin is posted at a very comfortable at 3.18%. If I compare that with the Q4, it is a dip from 3.27% to 3.18%. However, if I normalize last quarter, NIM with the higher year-end recoveries, it becomes 3.14%. As compared to that, we have posted a NIM of 4 bps high at 3.18%. We are having a stronger and robust asset quality and our gross NPA has improved by 63 bps from 3.51% to 2.88%. Similarly, as against our guidance of net NPA of less than 1%, we continue to be at 0.69%, improved from 0.78%. Provision coverage ratio is comfortable at 93.32%. Slippage ratio, our guidance was 1% to 1.25%, and we are at 1.05% maintained at same level as of Q1 '24. The robustness of our quality of the asset is depicted in our credit cost, which has improved 0.70% to 0.07% percentage.

Next slide, please. As far as our portfolio is concerned, we are not facing any incipient sickness in our portfolio, with SMA book is only 0.18% of our total standard asset and collection efficiency as compared to March, it has improved to 99%.

Similarly, the bank is enjoying a robust capital position with CET1 improving from 12.54% to 13.02%. And overall CRAR has been improved from 16.31% to 16.82%. And the bank is also having a healthy LCR of around 138%. That comes to the end of my presentation.

Over to you, Chand, sir.

[Debadatta Chand, executive]

So thank you, Chayani, Ji. And let me make some qualitative comments on the financials of the current quarter, Q1. So in terms of the guidance with regard to the loan growth and the deposit growth, slightly it is below the guidance. And the outcome is more of a strategic outcome that we wanted and that the CFO highlighted with regard to our liability management. So it is a Q1 of the financial year that allowed us to manage the liability in a manner that protects the margin more importantly and improves the bank's capital position.

So if you look at this quarter, I mean, if you have the number, the bill deposit outstanding as of March '24 was INR 224,000 crores. And the bulk deposit outstanding as of June end is INR 2 lakh crore. So there is a dip of 24,000. Out of that, there was a reclassification benefit available as for the RBI guidelines between the INR 2 crores to INR 3 crores. So there's something around INR 16,000 crores. The balance is the dip again in bulk deposit outstanding. And earlier also since December, I have been outlining this point that as a prudent profile, we want to reduce dependency on the bulk deposit. At that time also, we almost reduced bulk by INR 20,000 crore, INR 25,000 crores. I will just also give you another data point. If you compare to FY '23, bulk as a percentage of total deposits over FY '22, the increase was almost 600 bps. And if you look at the bulk as a percentage of bulk including CD as a percentage of total deposits as of June vis-a-vis March '23, almost the same level, almost only 50 bps increase.

So clearly, we are focusing CASA more. Precisely, the bulks 2 component. It impacts the margin because that's obviously a high-cost deposit. At the same time, the durability of liquidity also want to improve the quality of liquidity in the bank. So this worked well for the bank for this quarter. The LCR is almost at 138% now. The margin, we had a full year margin of 3.18% and we could maintain the Q1 also the same margin at 3.18%. Although our guidance has been at 3.15 plus/minus 5 bps, which we continue to hold on this. Secondly, on the profitability, as you know, we have a 9.5% growth vis-a-vis the Q1 of last year, and the profit metrics is working well.

Another data point, it would be important for you to also understand that on the cost of deposit, it's flat vis-a-vis the March '24. On the June '24, cost of deposit is the same like March '24, whereas March over December was almost an increase of 11 bps. So we wanted to manage liability so that on the cost side, we have a complete control. And so as to the margin is protected, as I said, in terms of the bank's objective in terms of building block, we'll look at asset quality as the first place. The profitability as the second and the top line is the third, the growth is the third.

So in that way, this has worked well for this quarter. This profit has been almost now -- this is the sixth quarter we are posting in excess of INR 4,000 crore net profit. On the ROA is the eighth quarter, we are posting ROA in excess of 1. So the financial metrics and all the profitability metrics is working well for the bank. And at the same time, looking for the next quarter and going forward because this quarter is a strategic outcome of what we wanted to happen. But the bank has a strong pipeline cases. We again hold the same guidance of deposit growth, 10% to 12% and advance growth at 12% to 14%. So I think that's something we wanted to reiterate the bank's growth metrics at the same time of profitability metrics. In terms of asset quality, it's fairly stable now. The GNPA sequentially has improved by 4 bps, although net NPA has gone up by 1 bps. But in terms of the guidance that we have given to the market earlier in terms of the slippage ratio between 1%, 1.25%, the current quarter has been 1.05%.

The credit cost, which is again earlier we said it will be less than 1%, and now we are improving that to less than 0.75%. The credit cost has gone below 0.5%. I mean earlier also multiple times, people asked about the recovery target. We're targeting INR 10,000 [ crores ] of recovery this financial year. In terms of GNPA and net NPA, we are not giving guidance, but the trending is clearly towards -- because we have already achieved sub-3 level of GNPA, the trending would be towards 2.5. As I said, margin is almost like -- there is something, I think, very positive as far as this quarter is concerned, a strong profitability with continuing margin is the strong point for this quarter, and the bank would continue to have in this journey. But clearly outlining a factor like we need to do a trade in terms of the margin requirement and also the growth at the same time.

With this, over to you, Phiroza for the question and answers.

[Phiroza Choksi, executive]

Thank you, sir. We will now start the question-and-answer session. [Operator Instructions] With that, I start with Rikin Shah.

[Rikin Shah, analyst]

So I had a bunch of questions, but probably I'll restrict myself to 2 in the beginning, and I'll come back in the queue. So firstly, you did mention that the slower growth in this quarter was a function of the strategic initiatives. The corporate loans degrew 6%. So in terms of you articulating loan growth guidance of 12% to 14%, would you be able to share how the mix would be moving in terms of the growth? And just to clarify on this, if your deposit is 10% to 12% and loan growth is 12% to 14%. Are we saying that the LDR can move up even slightly higher than 80%? And would the regulator be broadly okay? So that's the first question.

The second one is on the yields on global investments. So it has increased almost 135 basis points sequentially to 5.37%. Was it because of the new investment norms only? And if you could elaborate what drove this increased sequentially? So those would be my 2 questions. I have a few questions on asset quality, but perhaps I'll have to come back.

[Debadatta Chand, executive]

Thank you, Rikin. Actually, looking to the guidance and the current -- if you look at the corporate growth, as we said, when I reduce the dependency on the bulk at the same time, almost INR 25,000 crores of assets on the -- fine price asset, obviously, high quality, but then we allowed that to mature. So the idea is clearly, as you understand that the liability management leading to the margin protection actually, that's the strategy. So if you exclude the institution piece out of the corporate book, the core corporate has grown by 12%. So I mean, the corporate growth metrics is intact, the pipeline cases are strong. So I think what we intend to do in September quarter is to grow almost at the level 10% to 12% and retail has been growing faster, 20-odd percent for many quarters now.

Slightly, we'll keep focusing on the agri and MSME, which is slightly below 10%, need to go above 10%. So broadly, in case we do that, I think we'll be in a position to achieve that 12% to 14% growth we are talking on the advances side. We normally do not disclose the pipeline. But as of today, I have a very strong pipeline cases for us to give a growth of 10% to 12% on the corporate book. And a moment we get into that market of fine price anytime the book can increase, right? So that's something already inherently there with the bank. The second aspect we talked about deposit growth. Yes, the deposit has been slightly reducing the dependency. As I said, the bulk has gone down, the focus was on the CASA. If you look at my CASA growth, 6%, even better than the industry peers, right? We'll be working very strongly on that. Recently, we come out with a scheme on the retail term deposit. So the focus clearly would be on the retail side more. And I think -- I mean bulk as a percent is substantially we have content, but still there is scope moment, why there is a lower dependence in the bulk because of the elevated cost.

And the moment there is a bit of moderation happening, we'll again get into that market slightly, so as to we protect the margin at the same time. So I think fairly when I look at the current flow of both on deposit and advances, I think we'll be in a position to achieve this guidance of 10% to 12% for the deposit side and 12% to 14% on the advances side. On the LDR front, you are right, actually, why we wanted slightly a lower growth. The bank at a peak LDR of almost 84%, right? And that was something actually in terms of peers, we had the highest area. And as of today, with all this, we are at a LDR of 82% and we intend to operate between a band of 80% to 82% and slightly the bias would be towards 80%. So in that way, we are comfortable maintaining that kind of because we do have a strong borrowing pipeline also. Let us also not that -- we raised last year, almost INR 20,000-odd, INR 25,000 through Infra and the capital bond. So we have overseas channel open to those. Actually, where one bank having a huge international presence.

So I think these are all achievable in terms of managing on the growth guidance, both on deposit advances at the same time, operating the LDR of around 82% to 85%. Your second question was, I believe that was on -- just repeat that also.

[Rikin Shah, analyst]

Yes. So it was on yield on global investments, which is there in your PPT. So that has increased almost 135 bps Q-o-Q to 5.4%. So is it only led by the new investment norms or something more to read into it?

[Debadatta Chand, executive]

Global does include the domestic, including international, right? So...

[Rikin Shah, analyst]

Only the international, sorry.

[Debadatta Chand, executive]

International is more of a pricing. Actually, some of the time we will not be surprised, some of the return you get out of the international investment is as good as your domestic because of the scenario over in overseas market. But Mr. Tyagi, would you like to comment on this?

[Lalit Tyagi, executive]

So in fact, the international investment, yield has largely impacted because of the yield movement therein. And probably it is in line with the expectations as we were holding those investments. And if you analyze our investment portfolio in overseas, it has largely remained the same or flat barring some churning within that. In domestic also, you rightly picked up slightly. It has been added by the new investment and valuation norms or classification norms, I would say, with RBI. So some margins we have got there also.

[Phiroza Choksi, executive]

The next question is from Ashok Ajmera.

[Ashok Ajmera, analyst]

Sir, I would -- in my opening observation say sir, we are a little bit disappointed, sir. The overall profitability -- the overall results of the bank. Now we need to understand the regions. So like this other income has gone down substantially from INR 4,191 crores to INR 2,487 crores, and Mr. Chayani said that basically, it is because of the RBI change in the framework of the investment valuation, but it's not so, I mean almost INR 2,000 -- INR 1,700 crores has gone from the other income in which that part is very small. So on every front in the other income, including the other income of INR [ 313 ] crores. If you look at every head, like recovery from the return of account. Now this we used to consider is going to be robust. You've got a very big large book of those accounts from where the recovery return of accounts. And it has gone down to INR 554 crores compared to INR 1,202 crores.

So on every front in the other income, which has, I think, made a major dent on the overall profitability. One -- the other is we are not very clear that -- because you are probably the only bank or whatever I have seen, which stays in the Note #5, that the impact of the revised framework on the profit and loss account is not ascertained as the same are not comparable, but others have given whatever is the impact. So with the huge downside, like operating profit margins have also gone down 13.88% as compared to 14.47%. And in spite of the provision -- provisions also being lower, our overall profit has gone down, even the tax is also lower. So these are the 2 major factors, I believe. One is the norms changing for the investment valuation, the profitability on AFS book. But you have a good trading profit, which has come in the other income. So net-net, where have we lost as again, the profit increased, which we were expecting at least about INR 500 crores to INR 700 crores more than the last quarter. We are rather losing, we have lost here.

So this is my first question, major question on the profit.

[Debadatta Chand, executive]

Sure, I'll take your second question later because this is a lot of coverage on the first question. Can I reply to this, Ajmera sir?

[Ashok Ajmera, analyst]

Yes, sir, so that I can come back with other 1 or 2...

[Debadatta Chand, executive]

So actually -- You, actually it is not where we have lost actually, the issue is where we have gained even if there is a lower other income and noninterest income, how the profit has been so strong and that you want to point actually. Let me again clarify on a couple of things, like the noninterest income, which consisting of fee based income and treasury income for the matter, right? First, let me come to the treasury income. On the treasury income, we are seeing a change of almost like INR 850 crores. Why? Because the trading profit, which is almost like INR 400 crores, in the Q1 of last year it has gone down to INR 164 crores, precisely for the accounting -- I'll come to that. The second aspect is that there was a write-back of depreciation to the action of INR 625 crores, which is an additional depreciation to the extent of some INR 76 crores.

Why this change that is what important here. As for the new valuation, which came in, although the shifting of security was not allowed, but there was -- I mean, you have to reclassify the entire book, right? If we look at the reclassification vis-a-vis other banks and us actually, the trading book, which was earlier the HFT, which is a FVTPL. We have taken a lower book there. And the [indiscernible] position of the AFS entirely we took it to the normal AFS, right?

If you compare me and that's why the trading profit on the FVTPL, which was purely a trading position has been lower as compared to many, many of the other banks. At the same time, if you look at the reserve that we have created in the CET1 because of this stance of putting [indiscernible] into AFS, that is in excess of INR 3,200 crores. That has contributed to the CRAR on the CET1 to the extent of 30 bps. So clearly, the [indiscernible] kept it with the book, not otherwise. Leading to a position wherein I have strengthened the structural balance sheet of the book bank rather than, again, a certain objective of booking profit. This is point one with regard to the treasury.

If you net it on both sides, we have better off as compared to many others, that is point one. The second is something on the other fee-based income. Yes, you're right. They are actually -- that's a core area that we earlier also articulated, we need to focus. Growth has been slightly lower on 2 counts. The corporate book has gone -- I mean the growth is only 2.6%. A lot of processing fee linked with the [indiscernible]. And we deliberately wanted this -- because of the liability management, this book has to have a lower growth. So the processing fee has gone down. At the same time, on the wealth side of the business, actually on the wealth of distribution, we implemented many control mechanism there.

And the wealth income has also seen a significant dip almost like to the extent of 30%, leading to a fee-based income. So the only point that I can assure you that the management or we'll be concentrating on the fee based income this quarter, clearly, that's something we wanted to perform better that we didn't do. But the treasury income is clearly a strategic output wherein the strengthening of balance sheet was a more important factor as compared to booking trading profit because that doesn't serve me the objective as I have high, what you can say, net profit on that matter.

Recovery out of return of account actually last quarter was a one-off. My normalized run rate is almost like INR 700 crores to INR 750 crores. So in line of that, if we look at first last 8 quarters, the trend has been the same. I mean the normalized around INR 750 crores, INR 700 crores that we have done this quarter. So in spite of all this -- I'll come to that. The provision you said lower. Actually, what has happened the provision last quarter -- this quarter, out of 100% provided account, there was a government guarantee component. And we got almost INR 300 crores the guarantee money out of it. So the provision has to be reversed that can't be comparable because the provision has to be released there. So leading to a lower provision, it looks like, but the lower provision is because of a higher -- I mean, better credit cost, better asset quality, not otherwise, right?

So in that way, I think the bank is on a very strong fundamental part of it. This is not a onetime Y-o-Y increase in net profit to the action of 9.5%, right? So we are last 6 quarters, posting more than INR 4,000 crores of net profit. The profitability metrics is structural, sustainable, and that is what possibly can answer to your question on that. Can you go ahead with the second one?

[Ashok Ajmera, analyst]

No, sir, on this, so does it mean that if it is one time, in the coming quarter, we can expect the back by that INR 8,100 crores operating plus some INR 300 crores, INR 400 crores more kind of a profitability. If all the events were one-off events -- in the coming quarters, we'll come back to the 8,000-plus -- operating profit, INR 8,200 crores plus operating profit.

[Debadatta Chand, executive]

No, actually, the treasury income is not going to be because of the reclassification it has gone to the -- actually you would have seen the CET1 of -- maybe comparing with banks then look at the CET1 level for other banks and me. I have increased the CRAR, normally the June quarter CRAR is lower than the March. We have increased the CRAR by 54 bps. The impact of the investment norms on the CRAR is 30 bps. If you compare those CRAR, CET1, you can get a fair picture with regard to the investment strategy that we are talking about, right? So on the operating profit scale, normally, we don't give a guidance on the operating profit. But clearly, what is important to me on the net profit and the ROA guidance. So we continue to hold that ROA, this time also it is 1.13. And what we said last time that we need to maintain 1.10. So that is what actually I can guide you at this point in time.

[Phiroza Choksi, executive]

The next question is from Kunal Shah.

[Kunal Shah, analyst]

So with respect to the slippages, when we look at it in terms of the [ SME ] slippage, it's still continuing to be slightly at the higher end over past few quarters running at almost like, say, 4-odd-percent kind of run rate. So anything much to read into that? And when we look at it even on the PL side, there has been the inch-up in the GNPAs to almost like 2.5-odd percent, maybe there is still some kind of a seasoning, which is expected, but do we further see like the inch-up in the GNPAs of the PL and that's the reason we have moderated the growth.

[Debadatta Chand, executive]

No, no. Moderate growth is more of a, Kunal, more of a strategic outcome in terms of the liability management and consumability holding on the margin side. Actually, that's clearly...

[Kunal Shah, analyst]

No, I was just talking in terms of PL. PL moderation, growth moderation project -- yes, not the overall...

[Debadatta Chand, executive]

Actually, personal loan, the growth has been almost Y-o-Y 39% and quarter-to-quarter is much lower. I think it is something around 3% sequential growth, which was almost 80% earlier and sequential 12%. So clearly, the moderation has happened. In terms of the quality of the book, as I said earlier, this are again an existing customer and backed by the cash flow. Thirdly, in terms of any incipient part, we are not looking at the component of GNP on the PL is almost fairly stable for last many quarters. So there is no per se any concern on the PL side. So Mr. Lal Singh, anything you want to supplement on this, particularly more on the PL side that he's asking?

[Lal Singh, executive]

PL side, in fact, not increased. In fact, our PL is mostly to the service class individuals. So there is no challenge on the slippage side in the PL.

[Debadatta Chand, executive]

In fact, Kunal, if I add, the PL model itself will change around 6 months back, slightly capturing because a lot of what you can say, guidance in the market in terms of the PL the outcome, building stress in the book, but then now the model is also robust. You discover many other parameters, apart from the cash flow they're in because a lot of market data. Now we will take input as part of the model while deciding on the PL side. But clearly, we have moderated to a large extent and continue to, I think, because our base is very small as compared to many of the banks, right, on the PL. So we'll continue to grow at a normalized rate of around 30%, 35% year-to-year. That's what I can say.

[Kunal Shah, analyst]

Okay. And on MSME?

[Debadatta Chand, executive]

MSME, we want to focus actually the budget has a lot of take away from MSME and that is what actually -- if you look at the overall corporate growth, I mean, overall advance growth at 8.1%, the retail is going good at more than 20% for many quarters. Corporate was an outcome that we decided at the beginning of the quarter because of the liability management that we talked about. Agri and MSME want to grow higher, obviously. And MSME after the budget, I think there is a huge scope to upsize that growth with a strong cash flow metrics. Actually, knowing that we had a cash management product for the large corporate. Now we rolled out the cash management to the MSME customers, that is the cash flow is there with us. And we're able to now read into the cash flow more than as compared to what it was earlier. I think the MSME growth should normally get into that 14% to 15% growth model. And that is what we will be...

[Kunal Shah, analyst]

More on asset quality side of MSME...

[Debadatta Chand, executive]

MSME, actually, asset quality for the last 4 quarters has fairly stabilized. And if we look at my asset quality on MSME, it is, I mean, one of the good level as compared to many of the peers in the market. So we think a very stable outlook on MSME for last many quarters. Yes, there are -- if you talk about FY '22 and FY '23 to some part of '24 also, there has been elevated NPA level in MSME because obviously, COVID impacted them more than any other sector. But now these levels are fairly stabilized now, and were much comfortable to increase the growth at this point of time.

[Kunal Shah, analyst]

Okay. And last question on growth. So again, you highlighted in terms of the priority, it's going to be asset quality then profitability and then growth. But again, when we look at it, we have just reached the stabilization be it in terms of getting the bulk deposits down, now we'll try to grow retail as well. But does -- doesn't that mean like maybe even in terms of reaching the guided levels of growth, there could be some challenge out there if we don't see the stabilization and the improvement in the liability profile and if there is any further risk which can happen on the margins or on the ROA front?

[Debadatta Chand, executive]

No, on the ROE, we are very confident. As I said that we wanted to have some outcome this quarter. And on the growth, we have fairly also consists of the fact that we need to achieve those guidance on growth, both in terms of deposits and advances. So this quarter, we'll try to catch up [indiscernible] of the last quarter, we'll try to catch up in this quarter. So your point is on the consequent impact on the margin. That's a very fair take. Currently, if you look at the cost of deposit, it's flat for June over March. When I was in the month of March -- I mean, in the month of April, looking at the March number, the March over December was almost 11 bps.

So now we have a fair control on the cost of deposit. So at this point of time, I think we have the right bandwidth to increase a bit a bulk because the bulk level has been all-time low now after many years. So I think we can grow in that segment and not necessarily a high bulk actually this quarter, we slightly didn't focus because of the elevated cost. It's not necessary for this quarter, the same tune continued because there is -- although the rate stance has been the same, but the liquidity profile in the market is improving.

So rate can go down even if a case, there is a -- without a rate change because of the liquidity availability in the market. So we are very certain of slightly managing asset liability in a manner where we give the growth as per the guidance, that was 10 to 12 and 12 to 14, at the same time, fairly getting into our margin guidance. Margin guidance is 3.15 plus minus 5 bps, right? So that is for something, and we'll work on the growth side definitely this quarter.

[Phiroza Choksi, executive]

The next question is from Mahrukh Adajania.

[Mahrukh Adajania, analyst]

So my first question was again on asset quality, that the slippage in retail has gone up substantially. The growth in retail slippage is much higher than growth in retail loans. So anything you would like to call out specifically? And even within that, your gold, non-agri gold has grown. It was always growing very well, but it's grown even much stronger. So what are your strengths vis-a-vis other banks in this portfolio? Is it some new geography that you explored, if you could explain? And then I have one follow-up question.

[Debadatta Chand, executive]

Okay. So Mahrukh, the first thing you talked about on the slippage side, right, on the retail. So if you look at the slippage, the slippage has been all-time low in corporate and many other book and retail has gone up a bit, in the sense that sometimes there is a seasonal factor on a couple of cash flow happening on the retail side. And if I look into the composition of this retail book, there is one group assets, which has a dependency on the subsidy and that has gone bad actually, and I hope that we'll pull back that as early as possible.

So in terms of the incipient because we also tracked the SMA position in the -- on the retail and also the collection efficiency, both look very strong and good at this point of time. So that actually is not a concern or not significant at this point of time for me to raise anything with regard to the retail slippage. See, the guidance on the slippage ration are giving 1 to 1.25, and we're at 1.05 in spite of what you said about the retail a bit of more slippage. I think this is one-off, signal, going forward, we'll be in a contained -- better in the retail book. The second, I just forgot it, what you asked for?

[Mahrukh Adajania, analyst]

Gold loans, strong growth in gold loans.

[Debadatta Chand, executive]

Actually, If you look at the gold loan base of me and many of the peer banks, our base is low, that is point one. Secondly, I have 2 gold loans. One is a retail gold loan and another is agri gold loan...

[Mahrukh Adajania, analyst]

I'm asking retail sir...

[Debadatta Chand, executive]

Yes. So when I look at these 2 growths, we balance it out a different point of time depending upon the margin and the potential availability. Definitely, retail gold gives a slightly higher margin as compared to the agri gold. So we want to again slightly focus more on that. We have gold separate like branches that do have a separate wing for the gold loan. So that's working well now. And -- but the base is very, very small as compared to many of the peer banks will look on the retail gold side, right?

[Mahrukh Adajania, analyst]

Got it, sir. Sir, and just one more question in terms of your credit cost, right? So your annualized credit cost is around 40 basis points. Now with ECL were to be implemented effective FY '25. Is this kind of a credit cost through the rest of the year, good enough to meet the new norms? I mean the draft norms? I know that it's not finalized, but you would already have a rough idea?

[Debadatta Chand, executive]

Yes.

So actually, there are 2 scenarios. This time, credit cost is 0.47 and anything below 0.5 is a good number. You have annualized at 0.4. So the fact which is important, we were giving credit cost guidance of below 0.75, right, already it was 1. So why this guidance higher than the current level is precisely to factored in any ECL impact there. There are 2 factors on the ECL. ECL also talks about -- there is a loss provision impact on the standard asset. If you look at my SMA book as on today on the asset quality, which are all fairly stable, and there is a standard provision also inbuilt doing. So I don't think there is a substantial impact because of the ECL. Anyway, the ECL impact used to be spread over in many years that is what the guidance in case it comes as a framework to be implemented. So fairly provisional that the ECL impact, and I don't think any -- as of today, accounting that impact, we have to change any guidance in terms of ROA or anything for the matter.

[Phiroza Choksi, executive]

The next question is from Jai Mundhra.

[Jai Prakash Mundhra, analyst]

Yes, sir, and thanks for so much clarification that you have already given. I have a question, sir, on LCR. So this quarter, we have seen LCR rising to 138. Last quarter, it was around 121 something. What has changed? I mean if I look at your investment book, that has not changed materially. It's only 1% plus/minus. Loan deposit both have declined more or less similar. What has changed that has driven so much uptick in the LCR? And also a request if you can also publish your LCR disclosure on a quarterly basis, what we see is only in the annual report and 4 quarters comes together, but a request if you can also publish on a quarterly basis.

[Debadatta Chand, executive]

So on the LCR front, again, we had 122 in the last March, and we wanted to optimize that. So there are many components, not come to the specific component therein. But typically, if you look at the new draft guidelines and the impact thereof, right? So then you have to make provision and account for in that way the LCR is currently comfortable to take impact of drafted guidelines in case it comes as a final guidelines. But a component increase, anything we can add, Mr. Tyagi at this point of time?

[Lalit Tyagi, executive]

So in fact, sir, we have brought down our borrowings against the excess SLR. That is one point. The second point is that in terms of raising the fresh liabilities, which has the lower runoffs, that has also one contributing factors for the increase in LCR quarter-on-quarter.

[Phiroza Choksi, executive]

The next question is from [ Pritesh Mashru. ]

[Unknown Analyst]

I am a little investor, and I've been tracking Bank of Baroda for quite some time, almost right earlier as early as the merger happened, which was the first phase you merger. I have a couple of questions, not on the specific quarter numbers, but on a long range that I understand that before general elections, all the PSU banks were asked to provide your 5-year road map to the Prime Minister's Office. And certainly, there are good plans. And I think the overall objective of the PM was to look at how the banks can support the economic growth, which they are foreseeing that all the pieces of economic growth are there in place and how the banks can get their role.

So taking some clues from there, my question is that how the bank is going to grow in terms of balance its size over, say, next 3 to 5 years? And related to that, how the quality of the assets, how the profitability of the bank overall is going to look like. If you can throw some broad guidelines around it, that would be really helpful. That's the first question. And the second question is that, again, in terms of profitability parameters while return on asset is great to know. And I believe Bank of Baroda is well capitalized for that matter in terms of capital adequacy. So I'm not sure how the plans of fundraising would be there. But the point is how the return on equity is going to look like for this year and over, say, maybe 3 to 5 years from -- on an average going forward.

[Debadatta Chand, executive]

Okay.

So your first point is very pertinent. Actually, irrespective of the conversation between us and the government. Let me say that earlier we announced to the market also that is something earlier, it is already in the domain of public informs, that we want to grow at a CAGR of almost 13.5% for next 5 years. And that's a rolling plan actually because earlier years also you would have seen FY '23, the growth has been almost 16%. And this year, because of the liquidity issue, systemic liquidity issue, so it's not one bank, but many of the banks have lowered the growth guidance because obviously, liquidity gives you a deposit and then you lend money.

But the intention of the bank to grow at a CAGR of 13.5% for the next 5 years. And on a normal math, if you compute, it almost comes to doubling the number visas March '24. So that is something I can outline at this point of time. We are mindful like when you said that, earlier also I said, on a business plan, the underwriting standard and the quality of asset is something paramount as far as the strategy is concerned. And actually, one way to look into the RWA density that we do have for multiple product line and that's fairly stable and I'm going to -- I mean, these are improving also on a basis point scale. So I think as when we plan out the growth, we'll be mindful of the quality of asset.

ROA, we have been giving guidance. And currently, actually, while the ROE has gone down vis-a-vis the last quarter because, as I said, because of a strategic call on the investment side where we wanted [ in many ] AFS more on the AFS, which goes into reserve, the CET1 expanded almost by 54 bps. The CRAR has also gone up by around 50-odd basis point. And normally, if you see a June quarter because the profit is not added back to capital, you see a deep [indiscernible] March. But in our case, it has gone up 54 bps, which is not also if you compare a [indiscernible].

Because of the elevated capital level because of one investment reserve getting into because of the accounting norms, ROE has gone down to 16% or 16.5% or something. But on a guidance scale, normally, we give you ROA, but at the same time, we intend to maintain ROE in excess of [indiscernible]. I think that's a fair return on the equity that we can think of. There is no plan to raise capital because of comfortable CRAR. But as a subscription of AT 1 and Tier 2, we have announced to the market that roughly around INR 7,500 crores capital will be raising in this year. With a growth of roughly, let's say, on the advanced side, although we are giving 12% to 14%, taking also a growth of 14% at the current level of CRAR, I think -- and the kind of internal accrual we are generating out of the net profit, then I think equity raise may not be immediate visibility at this point of time. So no plan as of today on today's equity. I think I've answered you 3, but clearly, the bank is focused for a 5-year business plan. And internally, we are working on a lot of other levers or the metrics on the 5-year business plan.

[Phiroza Choksi, executive]

The last question for the evening is coming from Rakesh Kumar.

[Rakesh Kumar, analyst]

So sir, firstly, the question was related to credit yield number, which has fallen quite sharply this quarter. So if you can tell us what is the reason for that?

[Debadatta Chand, executive]

So we said earlier actually this quarter being the first quarter of the year, we wanted to realign on the growth numbers. The idea was to protect margin actually. And if you look at the liability side, we announced that we reduced the dependency on the product deposit. Again, in this quarter, we have announced that earlier also, we have reduced almost INR 600 crore, INR 7,000 crores after excluding the reclassification benefit of INR 2 crores to INR 3 crores. So that's something important. So now we're at a fairly stable level. The idea of dependency on the bulk is more from the cost impact because there is continue to be elevated in the market in today. But going forward, I think there may be a bit of moderation possible, and then we can raise bulk to the extent we need to fund our advances for the matter.

The advances growth is typically linked with the deposit growth, right? We are one bank where the deposit growth this quarter has been higher than the advanced loan. But at the advanced segment, also retail continues to be strong at more than 20%. The growth has been. MSME, agri almost slightly below 10% that we think that will improve this quarter. And particularly after the budget, again, there is a possibility to increase MSME significantly. The asset quality on the MSME now is fairly stable for the last 4 quarters, and that gives us confidence to increase the MSME.

Corporate again, as I said, the growth of 2.6%. If I exclude my institutional book, the growth has been more than 12% on the core corporate. So that pipeline continues to be strong. As far as the institutional side, with their high-quality fine price book, which, again, this quarter, we decided almost -- more than INR 25,000 crores, we wanted them to make sure so that we get the benefit on the repricing at a later quarter. And that's something we have done it in this quarter. Going forward, we'll optimize on that also so that we got a decent growth of corporate in excess of 10%.

[Rakesh Kumar, analyst]

Sorry, sir, I was just referring to the credit yield number, sir. The credit yield -- domestic credit yield fallen by around 25 bps sequentially. So when the credit yield number changed, I couldn't understand, sir.

[Debadatta Chand, executive]

Credit, what you -- come back? What do you say, credit...

[Rakesh Kumar, analyst]

Credit yield. Fall in the credit yield, sir.

[Debadatta Chand, executive]

Okay. Okay. Sorry. So actually, if you look at the cost and advances, they are both flat, right? Cost of deposit is flat on June over March. Advances, there are 2 -- on the [indiscernible], which is almost 50% of the book, these are already priced in, actually, the repo rate being flat for many quarters now. So the yield on that count is still flat. MCLR and other segment, there is a bit of churn happening in those markets also because the market is competitive. So in that way, the yield has taken slightly a cut. So Mr. Tyagi, can you address on this issue?

[Lalit Tyagi, executive]

So precisely, it is related to our strategy of shedding the fine priced assets as when they came up for the repricing or at the time of maturity. We did not went further to onboard them. And to contain that or to protect the margins, precisely that was the reason that we thought off at one point of time, this is enough. And now we do not want to take beyond that. So you are right that to some extent, we accepted that. And beyond that, we said that's enough today call. And as MD said that in core corporate, we saw the growth of nearly 11%, 12%, and which is at the price point where we wanted to onboard them.

[Debadatta Chand, executive]

To supplement what you said -- I'll just give you one data point. My average advance growth is higher than the terminal growth. So that can address the issue that we are talking about here.

[Rakesh Kumar, analyst]

Got it. Sir, just one last question. The second question, sir, the investment depreciation provision is like there is a -- so there is a INR 136 crores, which is like credited to P&L. So that number and write back on the standard asset provision. So why these 2 things have happened and where this investment depreciation write-back is coming from?

[Debadatta Chand, executive]

No, there's no write-back and rather we have provided additional depreciation as compared to the write-back that we did in Q1 of last financial year. But on the standardized provision, I think there are a couple of milestones on those assets and those got fulfilled. So we have to write it back. Anything CFO want to add on this?

[Chayani Sundar, executive]

Sir.

Basically, Rakesh, you were referring to the write-back in case of the investment, there was a specific account in which we got a valuation, the gain, and the specific account NPA account or that's the...

[Debadatta Chand, executive]

NPA accounting, top above the line, it was a depreciation provided on the standard investment. On the NPA investment, there a write-back because of increase in market value in a specific account.

[Phiroza Choksi, executive]

Okay, everyone. That's the last question for today. And, sir, if you can just give vote of thanks. Thank you.

[Chayani Sundar, executive]

Yes. So thank you all for sparing your valuable time and joining us for this analyst meet. The bank has posted a good quarter. And if any further query or clarification which we could not take during this call, please feel free to contact me or my team that I'm always available. And let us have close interaction with each other to get more clarification.

Thank you, and have a wonderful evening.

[Debadatta Chand, executive]

Thank you very much. Thank you. Thank you all...

[Phiroza Choksi, executive]

Thank you. Thank you, everyone.