Net interest margin to fall, Bank of Baroda can look to upsize treasury, wealth business

Sticky deposit rates and limited headroom to raise lending rates would crimp margins this fiscal at Bank of Baroda chief executive officer Debadatta Chand tells Joel Rebello. The second-largest public sector bank by assets crossed ₹20,000 crore in annual net profit in FY26, and it plans to step up fee income to make up for weaker interest margins. The bank also plans to build a debt capital market business through its newly-launched primary dealership business this year, said Chand, who last month received another three-year tenure in the corner room. Edited excerpts:

Your net interest margin (NIM) has dropped year-on-year. What is the outlook on core profitability?

All banks have taken a cut on NIM year-on-year; so it is in line with industry. Rather, our drop is lower than many of the banks. Going forward, the deposit cost is going to be sticky. I am not looking at further moderation. To protect NIMs, the bank will need to look at the asset side. EBLR is not going to change because there is a long pause of the expectation, so not going to change. In the corporate loan book there are two components MCLR and non-MCLR linked. The only segment I am looking at a realignment possibly is a non-MCLR book in corporate loan, which is linked to t-bills and government securities because our rates linked with those would move up with the benchmarks. We closed last year at 2.89% but we are giving a guidance of 2.75% to 2.95% this year. Last fiscal, there was an element of interest on tax refund. Keeping that volatility in mind we are giving a lower guidance of 2.75% on the downside.

Will the pressure on margin continue in the medium term?

As we migrate to a mature market, I think the margin needs to be squeezed because banks will have to operate at a lower margin, while keeping the return on assets (RoA) more than 1%. We need to be aligning ourselves for a slightly lower margin. In a mature market, the borrower would demand fine pricing, whereas the depositor would expect a higher rate. We will be trying our best to protect the margin, but the mature market scenario would force us to operate slightly at a lower margin and upsizing our non-interest income and lowering our cost to income.

You have made an extra ₹1,500 crore floating provision. is it to do with the expected credit loss (ECL) framework?
With that ₹1,500 crore floating provision we have buffered the balance sheet. With this, our total floating provision is ₹2,500 crore. This provision can be used in extraordinary scenarios with the approval of the regulator. It is not tagged with ECL provision. On ECL provision, the bank is well prepared to capture any impact. We are still computing ECL impact but for the year ended March 2026, my credit cost was 0.46%. I am now giving a credit cost guidance of below 0.6% for the current fiscal. This increase is sufficient to take care of the ECL provision on the income. ECL has two impacts, one the capital adequacy and another on the income. This increase is sufficient to take care of the impact on the income side.Any new businesses you plan to start this year?

Given that our current NIM is elevated vis a vis the system, we have to increase our non-interest income. Reducing cost to income is a challenging task. But to increase non-interest income we can upsize our wealth and treasury business. The treasury is where we have a lot of scope to get more fee income. The precise reason to float the primary dealer (PD) business is for us to do DCM business which we are not doing currently. We want to replicate a model of global banks where fee out of treasury would be a significant part of non interest income. There are debt market products like STRIPS, a non-corporate bond market where we can get fees. The PD business started operation from April 1 2026. We have committed ₹2,000 crore capital into the PD business. We plan to upscale that business. BoB Capital Markets will focus entirely on the equity side. We expect to start the pension fund in six to nine months.

What are the plans on subsidiaries like BoB Cards and Nainital Bank?

On BoB Cards we want to strengthen and create scale in the company and become a significant player in the market. Their ranking is almost at number 10 and we want them to improve. We have no board mandate as of today. We are open to infuse more capital there. Nainital is also doing well. They have good profitability, asset quality and strengthened their board and governance structure.