Bank of India is an India-based company which operates in three segments: Treasury Operations, Wholesale Banking and Retail Banking. Treasury includes the entire investment portfolio, which is dealing in government and other securities, money market operations and foreign exchange (forex) operations. Wholesale Banking includes all advances, which are not included under Retail Banking. Retail Banking includes exposures which fulfill following two criteria: Exposure- The maximum aggregate exposure up to five Crore rupees and the total annual turnover is less than 50 Crore rupees. The Company’s subsidiaries include BOI Shareholding Limited, PT Bank of India Indonesia Tbk, Bank of India (Tanzania) Limited, Bank of India (New Zealand) Limited. Other than banking products, the bank has introduced new line of products: Sangini Debit card, exclusively designed for Women, IMT-Instant Money Transfer, withdraw cash without card and Aadhar based bio-metric authentication for ATMs introduced.
For 4QFY2015, Bank of India (BOI) reported a bottom-line loss of Rs56cr, mainly on account of higher operating expenses and provision on NPAs. Loan growth slows; Asset quality worsens During 4QFY2015, the bank registered a yoy growth of a mere 8.4% in its overall advances, mainly on account of lower growth of 4.5% in its corporate book. Growth in retail and MSME was healthy at 15.4% and 20.7%, respectively, on a yoy basis. With stress and slowdown in corporate book, the Management intends to increase its exposure in retail from 12% to 14% in a couple of years. Deposits for the bank grew by 11.5% yoy with growth in CASA deposits at 8.5% yoy. Global NIMs dipped by 7bp qoq to 2.11% due to higher slippages in the quarter, while domestic NIMs for the bank fell sequentially by 29bp to 2.3%. The Management has guided at domestic NIMs improving to 2.45% from 2.3% with reduction in high cost deposits, while international NIMs are to improve from 1.15% to 1.3% in FY2016. The bank’s non-interest income (excluding treasury) grew by 9.2% yoy while the fee income was flat. Employee expenses grew by 30.4% as pension and gratuity liability has been fully provided for. The bank has reported fresh slippages to the tune of Rs6,547cr (annualized ratio of 7%) as compared to Rs3,356cr in 3QFY2015 (annualized ratio of 3.6%). 45% of fresh slippages are from infra, while 41% are technical in nature. Out of the total slippages, Rs2,100cr resulted from restructured book. Stress was mainly from infrastructure and iron & steel sectors. The bank sold loans worth Rs936cr to ARC during the quarter; however, Gross NPA ratio worsened to 5.4% as compared to 4.1% in 3QFY2015. The bank has restructured loans worth Rs2,775cr in 4QFY2015 and has no pipeline in 1QFY2016. Going forward, the bank has guided for Gross NPA and Net NPA ratio at 4.75% and 2.75% in FY2016. Outlook and valuation: BOI’s earnings for 4QFY2015 were much lower than expectations due to asset quality woes. We expect asset quality to improve gradually as economy improves. With CET1 ratio lower at 7.2%, the Management has guided for loan growth of 10-12% in FY2016, lower than industry growth. The bank is trading at a 0.4x FY2017E ABV. We recommend an Accumulate rating on the stock with a target price of Rs 225.
For 1QFY2016, Bank of India (BOI) reported a de-growth in profit, mainly on account of dip in other income and higher provision for NPAs. Loan growth slows; Asset quality worsens During 1QFY2016, the bank registered a yoy growth of a mere 2.1% in its overall advances, mainly on account of lower growth of 2% in its corporate book and degrowth in international advances by 4.2% yoy. Growth in retail and MSME was healthy at 20.7% and 12.5%, respectively, on a yoy basis. The Management has guided at the loan book growing in line with the industry in FY2016 with traction in retail book and international loan book. Deposits for the bank grew by 1.5% yoy with growth in CASA deposits at 9.6% yoy. Sequential moderation of 20bp in cost of deposits aided in slight improvement in NIM from 1.93% in 4QFY2015 to 2.1% in 1QFY2016. The bank’s non-interest income de-grew by 18% yoy with fall in most segments of other income. Also, higher opex led to increase in cost to income ratio from 44.5% in 1QFY2015 to 54.6% in the quarter under review. Gross NPA ratio for the bank went up by 141bp qoq to 6.8%, while the Net NPA ratio for the quarter stood at 4.1% as compared to 3.4% in 4QFY2015. The bank has reported total slippages to the tune of Rs6,535cr (annualized ratio of 6.5%). Slippage from power, infra and metals were Rs930cr, Rs512cr and Rs443cr, respectively, during the quarter. Out of the total slippages, Rs2,400cr resulted from the restructured book. The bank sold loans worth Rs64cr to ARC during the quarter. The bank restructured loans worth Rs92cr during the quarter and has 3 accounts worth Rs5,000cr that may be refinanced, going forward. Outlook and valuation: BOI’s earnings for 1QFY2016 were much lower than expectations due to elevated slippages. We remain watchful on the asset quality front going forward given the weak economic environment. Overall we have a cautious view on state owned banks. Hence, we recommend a Neutral rating on the stock.
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