The bank reported slower business growth in the first quarter of FY2027, with advances and deposits declining 0.9% sequentially. Domestic retail loans remained resilient, rising 18.5% year-on-year, despite weakness in overall domestic growth. Nomura expects a sharper decline in net interest margin due to lower interest income related to tax refunds. The brokerage maintained its Neutral rating, citing settlement impacts and uncertainty around reserves. |
State-run 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 slower business growth during the quarter.
The bank’s FY26 annual report continued to classify the matter as a contingent liability and reiterated its intention to provide robust legal protection. Legal and related expenses also increased by about 90% year-on-year to Rs 820 crore in FY26, reflecting litigation-related costs, Nomura said in a report.
The bank has 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 an undisclosed debt of about $6.6 billion was discovered.
NMC administrators have filed claims worth about $5.4 billion, alleging that Bank of Baroda facilitated fraud through anti-money laundering and know-your-customer violations. The bank has consistently denied the allegations and maintained a strong legal defense, with the Abu Dhabi Global Market trial set to begin in March 2026.
However, Bank of Baroda has now agreed to settle the case for $600 million, equivalent to about Rs 5,700 crore, without any admission of liability or wrongdoing. The settlement amount represents about 4% of the bank’s FY26 equity capital and is equivalent to almost a quarter’s profit, Nomura said.
The speed of the transition from strong protection to settlement in one quarter is surprising, the brokerage said, adding that it does not believe the bank has secured a settlement yet and expects the full impact to be recognized in the June quarter.
The bank’s overall loan growth remained weak in the quarter ended June 2026, with advances declining 0.9% sequentially, although they grew 17.4% year-on-year. The slowdown was driven by domestic advances, which fell 1.5% sequentially despite growing 16.1% year-on-year, while overseas advances grew 2.1% sequentially and 23.3% year-on-year, according to a Nomura research report.
Domestic retail growth continued to show resilience, increasing 2.4% quarter-on-quarter and 18.5% year-on-year.
Deposit growth
Deposit growth also remained subdued, declining 0.9% sequentially and increasing 13.8% year-on-year. Overseas deposits grew 2.0% sequentially and 8.9% annually, while domestic deposits fell 1.4% quarter-on-quarter despite annual growth of 14.7%. The bank’s domestic loan-to-deposit ratio remained largely stable at 83.3%.
Nomura said net interest margin (NIM) will remain a key monitor for the lender in the June quarter. While Bank of Baroda outperformed its public sector peers on net interest margin in the March quarter, the brokerage noted that interest income from income tax refunds, which it estimated contributed about 16 basis points to margins in the previous quarter, is likely to decline significantly in the current quarter, potentially leading to a sharper fall in margins.
Nomura maintained a neutral rating on Bank of Baroda, saying that while the stock has already corrected by about 4%, reflecting the settlement amount relative to the bank’s equity capital, investors will be keeping a close eye on margin performance and provisioning trends in the upcoming quarterly results.
- Published Jul 7, 2026 at 03:00 EST.
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