Higher provisions for debt will impact BOI's performance
Bank of India (BoI) has come full circle with the latest quarter results. It was the third straight quarter, wherein the bank posted a year-on-year fall in profit.
By Karan Sehgal, ET Bureau |
Bank of India (BoI) has come full circle with the latest quarter results. It was the third straight quarter, wherein the bank posted a year-on-year fall in profit. Earlier, BoI was known for consistently reporting a profit growth of 70% or more every quarter. The performance has also affected the stock’s run in the market. It is trading at just 1.5 times its book value now. While its closest competitors like Punjab National Bank (PNB) and Bank of Baroda (BoB) are trading at twice their book value.
The bank is grappling with a sudden spike in non-performing assets (NPAs) in fiscal 2010. At the end of previous fiscal, BoI’s net NPA stood at Rs 628 crore. Within six months of the end of the previous fiscal, its net NPA more than doubled to Rs 1,605 crore at the end of September 2009 quarter. For the past six months, the bank is struggling to improve its asset quality. But to no avail. Its NPAs increased further to Rs 2,207 crore at the end of March 2010 quarter.
In fact, its provision coverage ratio at 65.5% is still short of the 70% minimum advised by the Reserve Bank of India (RBI). However, the bank improved its coverage from 59.1% at the end of September 2009 quarter. For investors, this is the most important factor which is crippling the bank’s growth trajectory. Thanks to rising NPAs, its provisions have more than doubled on year-on-year basis in all three previous quarters. And since, the coverage remains inadequate, BoI will have to provide more, going forward. So in the coming few quarters, the bank’s profit will continue to be affected by rising provisions. There seems to be no respite for investors at least in medium-term.
Apart from high NPAs, the bank’s performance is at par with industry. It managed to grow its advances by 18.4% in March 2010 quarter compared to 17% growth in industry credit. A few smaller public sector banks have sharply cut down the rate of loan growth due to high NPAs. BoI has managed to grow its books despite having high NPAs and this should give solace to investors.
In all, the latest quarterly results had more negatives than positives for BoI. The bank will have to strive hard to regain its earlier position. Till then, investors should remain cautious.
The bank is grappling with a sudden spike in non-performing assets (NPAs) in fiscal 2010. At the end of previous fiscal, BoI’s net NPA stood at Rs 628 crore. Within six months of the end of the previous fiscal, its net NPA more than doubled to Rs 1,605 crore at the end of September 2009 quarter. For the past six months, the bank is struggling to improve its asset quality. But to no avail. Its NPAs increased further to Rs 2,207 crore at the end of March 2010 quarter.
In fact, its provision coverage ratio at 65.5% is still short of the 70% minimum advised by the Reserve Bank of India (RBI). However, the bank improved its coverage from 59.1% at the end of September 2009 quarter. For investors, this is the most important factor which is crippling the bank’s growth trajectory. Thanks to rising NPAs, its provisions have more than doubled on year-on-year basis in all three previous quarters. And since, the coverage remains inadequate, BoI will have to provide more, going forward. So in the coming few quarters, the bank’s profit will continue to be affected by rising provisions. There seems to be no respite for investors at least in medium-term.
Apart from high NPAs, the bank’s performance is at par with industry. It managed to grow its advances by 18.4% in March 2010 quarter compared to 17% growth in industry credit. A few smaller public sector banks have sharply cut down the rate of loan growth due to high NPAs. BoI has managed to grow its books despite having high NPAs and this should give solace to investors.
In all, the latest quarterly results had more negatives than positives for BoI. The bank will have to strive hard to regain its earlier position. Till then, investors should remain cautious.
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