Bank of Maharashtra: Q2-25 Earnings Call Highlights
Strong H1-25, exceeding guidance on some parameters. Focus on growth segments like gold loans, co-lending, & branch expansion. Maintains a healthy asset quality & comfortable liquidity position
bankofmaharashtra.in | NSE: MAHABANK
1. Key Takeaways
1.1 TLDR
Bank of Maharashtra demonstrated a strong performance in Q2 & H1-FY25, exceeding expectations on key financial and operational parameters.
The bank's strategic focus on growth segments like gold loans, co-lending, and branch expansion is expected to drive future growth.
Significant investments in technology and digitization are aimed at enhancing efficiency and customer experience, ultimately contributing to the bank's long-term success.
Despite a challenging macroeconomic environment, the bank maintains a healthy asset quality and a comfortable liquidity position.
1.2 Key Themes:
Strong Financial Performance:
Bank of Maharashtra reported robust financial results for Q2 & H1-FY25, exceeding guidance on several parameters.
Business Growth: Total business grew by 17% YoY, with advances increasing by 19% YoY. Notably, deposits saw a 15% YoY growth, with CASA growing by 12% YoY, reaching INR 15,000 crore.
Robust Growth in RAM Segment: Retail, Agriculture, and MSME segments experienced substantial growth, with retail at 23% YoY, agriculture at 34% YoY (largely driven by gold loans), and MSME at 25% YoY.
Improved Asset Quality: GNPA improved to 1.84% from 2.19% last year, with NNPA at 0.2%. Total recovery amounted to INR 475 crore in Q2, comprising cash recovery, upgrades, and write-off recovery. PCR stands at a healthy 98.31%.
Capital Adequacy: BoM remains well-capitalized with a CET1 ratio of 12% and a CRAR of 17.26%.
Profitability: Net interest income saw a 15% YoY growth, reaching INR 375 crore. NIM remained stable at 3.98% despite industry concerns about potential contractions. Operating profit grew 15% YoY to INR 2,203 crore, while net profit exhibited a remarkable 44% YoY growth, reaching INR 1,326 crore. Net profit surged by 44% YoY, reaching INR 1,326 crore.
ROA: improved by 36 bps YoY to 1.74%,
ROE: stands at 26.01%.
Strategic Focus on Growth:
Gold Loans: Strong focus on gold loans, particularly in the agricultural sector. "Gold has been a focused product for growth this financial year, which has seen a Y-o-Y growth of 60%." The bank plans to increase its gold loan portfolio to INR 15,000 crore by the year-end.
Co-Lending Partnerships: Actively pursuing co-lending partnerships with highly rated NBFCs to expand reach and generate high yields. The current co-lending book stands at INR 2,000 crore.
Branch Expansion: Ambitious plan to add 1,000 branches in the next 5 years, focusing on growth centres outside Maharashtra. In the next 12 months, 200-220 branches are planned.
Technology & Digitization: The bank highlighted its significant investments in technology and digitization to enhance operational efficiency, customer experience, and drive future growth.
Digital Business Zone: Successfully established a digital business zone with a current portfolio of INR 4,500-4,700 crore, demonstrating the effectiveness of technology-driven business generation.
Key IT Projects: Implementation of CRM, Lifestyle Banking, hardware and software overhaul, RPA, and STP journeys to improve efficiency and customer service.
Asset Quality and Liquidity:
Despite some increase in SMA-2 accounts, overall stress in the loan book is well managed with no immediate signs of concern. The management highlighted their robust systems for monitoring various portfolios and strict underwriting benchmarks.
The bank maintains a comfortable liquidity position with a healthy LCR and CD ratio.
International Expansion: BoM has received Board approval to apply for a GIFT City license and is actively pursuing discussions with regulators. They view this as a significant opportunity to engage in ECBs and global syndications.
1.3 Key Quotes:
"A lot of strategies were put in place in the beginning of this financial year in areas of concern like deposits, and those all are yielding good results to the bank."
"Gold has been a focused product for growth this financial year, which has seen a Y-o-Y growth of 60%."
"We are quite comfortable. If you see that we are having the sizable investment portfolio and most of them are related to SLR securities." - (regarding liquidity)
"We will continue to protect yield. We will also eye the trading profit at the time of softening of yield." - (regarding treasury income)
"We have proper systems in place to closely monitor the various portfolios. I don't see any issue in corporate book or other loan books, they are behaving fine. There is no incipient or stress that we are able to look at." - (regarding asset quality)
1.4 Analyst Concerns:
Potential NIM compression due to anticipated rate cuts.
Sustainability of high growth rates, particularly in the gold loan segment.
Increase in SMA-2 book, requiring clarification on the nature of these accounts.
Liquidity management in the current rising interest rate environment.
Limited national market share and its potential impact on pricing power and risk appetite.
Bank of Maharashtra Q2 & H1-FY25 Earnings Conference Call FAQ
Q1: What were the key highlights of Bank of Maharashtra's Q2 and H1 FY25 results?
A: The Bank of Maharashtra reported strong Q2 and H1 FY25 results, exceeding guidance on multiple parameters:
Business Growth: Total business grew 17% YoY, with advances up 19% and deposits up 15%.
CASA Growth: CASA deposits grew 12% YoY, adding INR 15,000 crore and maintaining a CASA ratio of around 50%.
Loan Growth: Retail, Agriculture, and MSME segments experienced high double-digit growth. Agricultural gold loans were a significant contributor.
Asset Quality: GNPA improved to 1.84% from 2.19% last year. NNPA stands at 0.2%, with a healthy PCR of 98.31%.
Profitability: Net interest income grew 15% YoY, reaching INR 375 crore. NIM remained strong at 3.98%. Net profit surged 44% YoY to INR 1,326 crore.
Capital Adequacy: The bank is well-capitalized with a CET1 ratio of 12% and a CRAR of 17.26%.
Q2: What is the Bank's strategy for managing NIM in light of potential interest rate cuts?
A: While the Bank has consistently maintained a NIM of 3.92% to 3.98%, a conservative guidance of 3.75% to 3.85% has been set for the fiscal year. This considers the potential impact of interest rate cuts on the Bank's loan book, 37% of which is repo-linked and would be immediately repriced. Deposit repricing, however, would likely lag, potentially impacting NIM in the short term.
Q3: What is driving the significant growth in the Bank's gold loan portfolio?
A: The gold loan portfolio has seen substantial growth due to:
Increasing Demand: Post-COVID, there has been a surge in demand for gold loans across banks.
Infrastructure Development: The bank has invested in infrastructure for safekeeping pledged gold ornaments and appraisal facilities.
Favourable Economics: Gold loans offer attractive pricing, a 0% risk weight, and contribute to achieving priority sector lending (PSL) targets.
Co-Lending Partnerships: The bank has established partnerships with leading gold loan NBFCs to further expand its reach in this segment.
Q4: Is the Bank reducing its exposure to the corporate sector?
A: The bank maintains a strategic allocation of 60% towards RAM (Retail, Agriculture, MSME) and 40% towards corporate loans, with a flexibility of +/- 2%. While the current focus is on high-growth RAM segments, the Bank remains open to opportunities in emerging sectors like infrastructure, renewable energy, and PLI schemes.
Q5: What is the Bank's strategy for managing the SMA-2 book, which has seen a significant increase?
A: While the SMA-2 book increased, it is primarily due to two accounts, both below INR 60 crore. Overall stress in the loan book is well managed, declining from 7.54% YoY to 5.8%. Notably, a significant portion of the SMA increase is attributed to a few state entity accounts, one of which (INR 717 crore) has already returned to standard category status.
Q6: What is the Bank's co-lending strategy and how is it performing?
A: The Bank has actively pursued co-lending partnerships with AA-rated and above NBFCs in various segments, focusing on technology-driven processes for seamless underwriting, disbursement, collection, and reconciliation. The co-lending book has reached approximately INR 2,000 crore, providing high yields (NIM of 5% or more in some cases) and contributing to PSL targets. The bank is actively expanding its co-lending partnerships.
Q7: What is the Bank's branch expansion plan and how will it manage the associated operational costs?
A: The bank has an ambitious branch expansion plan, aiming to add 1,000 branches over the next five years. The focus is on identifying high-growth centres outside of Maharashtra. While acknowledging the operational costs associated with new branches, the bank expects these to be offset by revenue generation from new branches in strategic locations. The cost-to-income ratio is targeted to remain below 40%.
Q8: What is the status of the Bank's digital transformation initiatives?
A: The bank has undertaken a significant digital transformation journey, investing over INR 2,700 crore in the past three years across retail, corporate, operations, customer service, efficiency, and compliance. Key highlights include:
Digital Business Zone: This dedicated zone, operating entirely digitally, manages a portfolio nearing INR 5,000 crore.
Major Projects: Implementation of CRM, Lifestyle Banking, hardware and software overhauls are ongoing.
RPA Implementation: Over 60 RPAs are live, with a target of 150.
STP Journeys: Multiple STP journeys are being rolled out in phases, with 12-15 already launched.
Audit Software: A comprehensive audit software with 18 modules is being implemented in phases.
These initiatives are expected to enhance efficiency, customer experience, and contribute to future business growth.
Source: Link to Earning Call Transcript
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