Motilal Oswal neutral on Bank of India

“Bank of India's (BOI) 1QFY13 PAT grew 71% YoY to INR8.9b (43% higher than our estimate), led by lower provisions (due to INR1.36b write-back of investment provision) and higher other income (jump in recoveries from writtenoff accounts).”

“Gross slippages for the quarter were INR17.5b (v/s ~INR8b in 4QFY12). Net slippages were INR11.9b (v/s negative net slippages of INR5.2b in 4QFY12), as upgradations and recoveries slowed down to INR5.5b. BOI restructured loans worth INR40.7b in 1QFY13, of which INR29.6b and INR1.8b pertain to Air India and SEBs. Domestic NIM declined 73bp QoQ on account of (1) interest income reversals of INR1.7b, led by restructuring of Air India account, (2) higher slippages leading to interest reversals, and (3) reduction of 25bp in base rate. Other highlights: (1) Global loan book grew 5% QoQ and 23% YoY, (2) CASA ratio stood at 32% v/s 34.3% in 4QFY12, and (3) CEB (commission, exchange and brokerage) income grew just 10% YoY.”

“Volatility in assets and higher restructuring are impacting margins and leading to higher credit cost, impacting profitability. BOI's loan growth in the perceived riskier segments such as Infrastructure, Gems & Jewelry and Metals is 25-30% YoY, which in the current environment could pose a threat and keep asset quality under pressure. Maintain Neutral,” says Motilal Oswal research report.   

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