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Oriental Bank of Commerce 3QFY2014 performance highlights and results update

February 12, 2014, Wednesday, 07:41 GMT | 02:41 EST | 12:11 IST | 14:41 SGT
Contributed by Angel Broking

Oriental Bank of Commerce (OBC) delivered a subdued operating performance, while asset quality witnessed moderate pressures. NII for the bank remained largely flat yoy, while non-interest income de-grew by 10.7% yoy, leading to flattish operating income on a yoy basis. Pre-provisioning profit for the bank de-grew by 7.3% yoy. On the asset quality front, the bank witnessed moderate pressures, as the absolute Gross and Net NPA levels increased sequentially by 6.1% and 12.0% respectively. Provisioning expenses de-grew by 7.1% yoy (on a large base of 3QFY2013), thereby leading to PBT level earnings de-growth of 7.8% yoy. Tax expense for bank came at Rs.73cr (against tax reversal of Rs.4cr in 3QFY2013). Overall, earnings declined by 31.3% yoy.
Moderate Business growth; NIMs decline qoq: The bank’s business grew at a moderate pace during the quarter, with advances growth of 8.4% yoy and deposits growth of 8.3% yoy. Growth in CASA deposits was relatively higher at 9.8% yoy. CASA ratio improved 32bp yoy (dipped by 34bp qoq) to 24.2%. The cost of deposits for the bank increased by 14bp qoq to 7.7%, driving 15bp qoq fall in Reported NIMs to 2.7%. The bank’s non-interest income (excluding treasury) registered a decline of 2.4% yoy to Rs.308cr. The asset quality pressure for the bank continued, as slippages came in sequentially flat at Rs.1,042cr (annualized slippage rate of 3.2%) as compared to Rs.1,014cr in 2QFY2014 and Rs.813cr in 3QFY2013. Performance on recoveries and upgrades for the bank came in higher at Rs.354cr for the quarter as compared to Rs.195cr for 2QFY2014 and against an average of Rs.269cr for the last four quarters. Overall Gross and Net NPA levels increased by 6.1% and 12.0%, respectively. PCR (incl. technical write-offs) for the bank dipped 180bp qoq to 59.7%. As per the Management, a quarterly slippage run-rate of ~Rs.800cr can be expected for 4QFY2014. During the quarter, the bank restructured advances worth Rs.1,356cr (major accounts falling in I&S Rs.460cr, Infra Rs.357cr, and Textile Rs.327cr), thereby taking its total outstanding restructuring book to ~Rs.9,700cr. Going forward, the restructuring pipeline for the bank stands at around Rs.1,100cr for the next quarter.
Outlook and valuation: The bank has been witnessing asset quality pressures on its loan book in-line with the weakening macro environment. We remain wary of the incremental asset quality concerns for the bank, as we take into consideration its high exposure to stressed sectors and overall weak economic environment. Overall, we have a cautious view on the state owned banks. Hence, we recommend a Neutral rating on the stock.