The Bank of Baroda (BoB) has faced a challenging year, with its stock price plummeting approximately 16%, significantly lagging behind the Bank Nifty index by about 24%. However, a fresh outlook from the global brokerage firm UBS brings a glimmer of hope, as they have upgraded BoB’s stock rating from Neutral to Buy and increased their price target from Rs 270 to Rs 290.

Key Factors Behind the Upgrade

1. Positive Loan Growth Trends

A notable concern for Bank of Baroda has been its sluggish loan growth. Fortunately, UBS has identified signs of improvement. The brokerage reports that loan growth has improved to around 12% year-on-year for the third quarter of FY25, driven primarily by robust performance in the Retail (approximately 20% YoY) and MSME (around 14% YoY) sectors. These segments, along with agriculture, account for nearly 60% of the bank’s total loan portfolio, offering a strong foundation for future growth.

• Retail loan growth: ~20% YoY
• MSME loan growth: ~14% YoY
• Total loan growth: ~12% YoY in 3QFY25

UBS anticipates that recent regulatory measures will bolster demand for loans, particularly within the retail and MSME sectors. The brokerage forecasts loan growth to remain steady at around 12% from FY25 to FY27, with a higher proportion of loans linked to the Marginal Cost of Funds based Lending Rate (MCLR) expected to limit net interest margin (NIM) compression.

2. Stable Margins and Asset Quality

UBS’s analysis indicates that Bank of Baroda is likely to remain insulated from the margin pressures that some of its private-sector counterparts are currently facing. With approximately 47% of its loans tied to MCLR, the bank is expected to experience only a minor decline in NIMs, even amid a falling interest rate environment.

• Projected NIMs: Expected to decline slightly to about 3% by FY27E.
• Stable asset quality: A lower proportion of unsecured loans and consistent MSME trends are expected to keep asset quality intact.

Moreover, UBS has revised its credit cost estimates down by 20-25 basis points, projecting costs to remain between 70-75 basis points for FY26 and FY27E.

3. Attractive Valuation and Upside Potential

Currently, Bank of Baroda’s shares are trading at 0.8 times the estimated price-to-book value for September 2026, which aligns closely with its five-year average. This valuation suggests that there is ample room for growth, especially with anticipated improvements in earnings.

• Current P/BV: 0.8x as of Sep’26E
• Potential price target: Rs 290, implying a 1.0x P/BV based on expected enhancements in return on assets (RoA), return on equity (RoE), and earnings per share (EPS).

Despite its underwhelming performance over the past year, UBS sees a positive shift on the horizon. The brokerage has upgraded its recommendation to Buy and raised its price target to Rs 290, reflecting an optimistic outlook on Bank of Baroda’s recovery and growth trajectory.

Conclusion

In summary, Bank of Baroda appears poised for a turnaround, supported by improving loan growth, stable margins, and attractive valuations. Investors may find this an opportune time to consider the bank as part of their portfolio, given the potential for long-term gains.