![](\"https:\/\/im.rediff.com\/money\/2023\/may\/25bob.jpg?w=670&h=900\")
<\/p>\nThe Reserve Bank India’s (RBI’s) decision to ban the onboarding of new accounts on the “bob World” mobile digital platform led to a selloff in the Bank of Baroda (BoB) stock.<\/p>\n
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The stock of the public sector bank dropped by around 3 per cent.<\/p>\n
The central bank cited “material supervisory concerns”; news reports claimed mobile numbers were randomly linked to accounts to purportedly inflate registrations on bob World.<\/p>\n
The Q1FY24 data indicated over 90 per cent of savings and current accounts were sourced digitally. Also, 43 per cent of time deposits in Q1FY24 were sourced via bob World.<\/p>\n
In addition, 74 per cent of retail loans were sourced through the app.<\/p>\n
Around 61 per cent of credit cards and 89 per cent of personal loans were sourced digitally.<\/p>\n
Even in other retail products, 67-68 per cent of home loans and auto loans were sourced digitally.<\/p>\n
While existing accounts can continue to use bob World, the ban shall slow growth in new accounts and on both asset and liability sides.<\/p>\n
This is a cause for concern given the rising mix of digital sourcing and the higher cross-selling rates bob World enabled.<\/p>\n
BoB released its Q2FY24 business update a few days ago.<\/p>\n
The details were encouraging as the second-largest PSU Bank reported robust growth.<\/p>\n
Total advances grew 17 per cent year-on-year (4 per cent quarter-on-quarter) to Rs 10.3 trillion, with domestic advances up 16.6 per cent Y-o-Y (3 per cent Q-o-Q).<\/p>\n
The international book rose 21 per cent Y-o-Y (up 6.4 per cent sequentially).<\/p>\n
Domestic retail loans grew 22.5 per cent Y-o-Y (5.4 per cent Q-o-Q).<\/p>\n
Total deposits grew 14.6 per cent Y-o-Y (up 4.2 per cent Q-o-Q) to Rs 12.5 trillion, with domestic deposits up 12 per cent Y-o-Y (up 2.3 per cent Q-o-Q).<\/p>\n
International deposits jumped 32 per cent Y-o-Y (up 15.8 per cent Q-o-Q).<\/p>\n
Domestic CASA deposits increased 4.4 per cent Y-o-Y (up 1.1 per cent sequentially).<\/p>\n
The ban is bad for the sentiment. Finding alternative channels for growth would take time; the pivot is forced in Q3FY24, which is the crucial festival season for a retail-focused lender. Before these issues, BoB was seeing fair support with analysts positive on the Q2FY24 update.<\/p>\n
The management guidance was for advances growth of 14-15 per cent in FY24, beating the industry rate, mainly through the retail focus.<\/p>\n
BoB posted its highest-ever quarterly profit in Q4FY23, supported by broad-based credit growth, high margins, and improving credit quality.<\/p>\n
It showed improvement over that in Q1FY24 with 2.2 per cent Q-o-Q advances growth.<\/p>\n
Asset quality also continued to improve with gross net performing assets (GNPA) and net NPA currently standing at 3.51 per cent and 0.78 per cent.<\/p>\n
BoB reported a net interest margin (NIM) of 3.31 per cent in FY23.<\/p>\n
If interest rates are stable with a possible rate cut in Q4FY24, the NIM may decline but it shall still be 3 per cent-plus and climb slightly higher in FY25.<\/p>\n
Apart from the retail focus, the significant improvement in corporate balance sheet health could also be a positive for the bank’s books since BoB’s issues in the past were due to large corporate defaults, which led to lower asset quality and spikes in credit costs.<\/p>\n
BoB will have to find alternative channels to access new customers until such time as the ban is rescinded.<\/p>\n
This will impact growth and perhaps, it will raise costs.<\/p>\n
But it should not impact asset quality.<\/p>\n
There could be some further downside due to adverse sentiment.<\/p>\n
Valuations may look reasonable once the market has discounted the impact of the ban.<\/p>\n