Bank of Baroda plans overseas expansion, targets wholesale banking in developed markets

NEW DELHI: Bank of Baroda is looking to expand its international footprint, targeting wholesale banking in developed economies and retail banking in emerging markets as it seeks to build on strong growth in its overseas business.

The lender, India's second-largest public sector bank, is evaluating opportunities across geographies, although specific markets and expansion timelines are yet to be finalized, managing director and chief executive officer Debadatta Chand said in an interview with Mint.

"We are trying to increase our international footprint. We have seen that the growth in our international book has been very significant, and the asset quality has also been positive," Chand said, adding that the bank will announce specific markets after completing assessments and securing the necessary approvals.

The proposed expansion comes as India deepens its trade engagement and expands its network of free trade agreements, potentially creating opportunities for domestic lenders to support cross-border businesses. Chand did not identify any target markets.

Bank of Baroda already has nearly 35 directly operated branches and offices and about 45 through overseas subsidiaries. Its international network also includes an IFSC Banking Unit at GIFT City and Electronic Banking Service Units in the United Arab Emirates.

Its presence spans financial centres such as New York, London, Dubai and Singapore, alongside markets across Africa, Australia, Fiji, Mauritius and Seychelles. The network primarily serves Indian companies, cross-border trade and non-resident Indians.

As of 30 September, international advances stood at approximately ₹3.25 trillion, up 40% year-on-year, while international deposits rose 15% to ₹2.62 trillion. International business accounted for 16-17% of the bank's global business, which exceeded ₹32.5 trillion.

The lender is also stepping up efforts to mobilize overseas deposits. Under the Reserve Bank of India's special window for attracting foreign currency deposits, the lender mobilized approximately $8.08 billion through FCNR(B) deposits. Another $1.1 billion came through other routes, taking total mobilization to approximately $9.18 billion, Chand said.

FCNR(B) deposits allow non-resident Indians to hold savings in designated foreign currencies, providing banks with an additional source of overseas funding.

Margin recovery

Bank of Baroda expects its net interest margin (NIM) to improve in the December quarter, as higher lending rates feed through faster than rising funding costs.

Nearly 38% of its loan book is linked to the repo rate, and repricing following the recent policy rate increase has already taken place. Corporate loans linked to other benchmarks, including Treasury Bill-linked rates, are also expected to lift interest income in the coming quarter.

“The last quarter would not have the full impact. Q3 is going to have the full impact. Considering that, a significant uptick is possible on the interest income side,” Chand said.

Deposit costs are also expected to rise, but the bank believes it can manage the impact with a lag, supported by liquidity from its foreign currency deposit mobilization. “I am very positive about Q3 margin being better than Q2,” Chand said.

It has retained its NIM guidance of 2.75-2.95% for fiscal year 2027 (FY27).

Following a strong first half, it has raised its annual growth guidance for advances to 13-15%, from 12-14% earlier, and for deposits to 11-13%, from 10-12%.

Advances grew more than 18% in the September quarter, while deposits rose over 16%. Operating profit increased 50% and net profit 36%, Chand said.

The bank expects to maintain return on assets (ROA) above 1% in both the December and March quarters. It has indicated a slippage ratio of 1-1.25% and credit cost below 0.6%, while continuing to prioritise profitability and balance-sheet growth.

It expects momentum to continue, supported by underlying demand and its festive-season lending campaign. Demand under the campaign has remained strong despite geopolitical uncertainties and infrastructure-related challenges, he said.

Retail push and capital plans

The bank is also shifting its loan mix towards retail, agriculture and MSME (RAM) lending. The segment accounts for 64.2% of total advances, up from around 56% three years ago.

The bank has consistently delivered 18-20% year-on-year growth in its RAM portfolio as it seeks to diversify its loan book and increase retail exposure, Chand said. “Working on the RAM segment is part of our concept of retailizing the book. It helps us diversify the portfolio and also gives us a better opportunity compared with the corporate book,” he said.

It is targeting annual recoveries of more than ₹10,000 crore in FY27, with recoveries remaining central to its asset-quality strategy alongside monitoring slippages and credit costs.

It plans to raise ₹6,000 crore through additional tier-I and tier-II bonds during the current financial year. It has also announced plans to raise up to ₹8,500 crore through equity issuance over the medium term ending FY28.

Among its subsidiaries, the bank is considering a potential listing of IndiaFirst Life Insurance, with timing dependent on market conditions. There are no immediate plans to sell stakes in its other subsidiaries, Chand said.

Cybersecurity under review

The bank is stepping up technology and cybersecurity investments following a recent incident involving limited customer information held in one of its smaller applications.

The incident did not affect its core banking application or compromise core banking operations, Chand said, but prompted a comprehensive review of its cybersecurity architecture.

The lender is working with external cybersecurity experts and government agencies to strengthen its systems. It typically allocates around 10% of operating profit to technology investments and operating expenditure, Chand said. Its technology subsidiary, Baroda Sun Technologies Ltd (BSTL), is also developing capabilities in emerging technologies and cybersecurity.

"We are very mindful of the need to invest more in technology and are prepared to do that," he said.