Q4 results: IIFL reviews BoB, Allahabad Bk, Andhra Bk nos

In an interview to CNBC-TV18, Rajiv Mehta, banking analyst of IIFL India, gives his views on Bank of Baroda's, Allahabad Bank's and Andhra Bank's fourth quarter results and outlook going forward.

Also read: See slippages under 1.25%; deposits growth at 20-21%, says BoB

Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying video.

Q: Although Bank of Baroda’s non-performing loans (NPLs) have gone up compared to previous quarters, you will have to say that compared to other banks the NPL still seems a very controllable story. What is your view on the result itself?

A: If you look at the numbers and if you remove the non recurring items and the few lumpy things then still their numbers are operationally weak with net interest margin (NIMs) coming down more than what we were expecting. Also, there has been a big deceleration in the fee income. Overall, the profit number came in higher because of tax right back. But if you look at the pure operational return on asset (RoA) and the numbers then they were below expectations.

Q: The other one you have downgraded is Allahabad Bank. That is down around 8%. What didn’t you like about the numbers?

A: The key negative was one is that margin declined sequentially by 50 bps. That is a sharp decline. Secondly, the slippages came in pretty high. The annualised delinquency ratio was 3.6%, highest in many quarters. So, the key disappointments were margin decline and asset quality and also large scale restructuring.

For Allahabad Bank, the restructuring pipeline still remains pretty big, given the fact that they have got huge exposure to the UP SEB of about Rs 22 billion, which is likely to get restructured in the coming quarters. So, overall as a package the numbers really didn’t have any positive.

Q: Bank of Baroda, what's your target price and what is your call at the moment?

A: The outlook still remains better than other banks, given the fact that a large part of the restructuring is over and they don’t have more SEBs to be restructured.

Secondly, the slippages guidance, which they have given for the next year, seems pretty modest given the size of the bank. There is a pretty substantial upside in the stock, given the fact that the current valuations are trading just below one time FY13 price to adjusted book. So, our target price is Rs 850 which implies a significant upside from the current levels.

Q: Do you track Andhra Bank? The numbers just came in and the profit seems above expectation and NPLs also have gone down a bit. Did you take a look at the numbers or it’s a bank you don’t track?

A: I don’t cover the bank as such. But as far as NPL trend is concerned, I think clearly they have imprinted dispread in this quarter with some banks reporting sharper than expected deterioration, whereas some banks really surprising on the asset quality side, for example even Corporation Bank reported very benign slippages of 0.7%. So, clearly there has been a big contrast within PSU banks in terms of asset quality trend in this quarter.

Q: Which is your best and worst performer till now? What is the expectation from one of the big ones like State Bank of India (SBI) going forward?

A: Vis-à-vis my expectations, I think banks like Bank of India performed better, whereas Bank of Baroda and Allahabad Bank was more disappointing.

In terms of SBI, we think the numbers will be good. For Q4, we are expecting about Rs 36 billion profits. That is a good jump on sequential as well as on year-on-year basis. The asset quality trend should improve in the sense that the slippages for the quarter could be lower than what they were reported in the previous quarter.