BoI stock likely to react on asset quality woes: IDBI Cap

Bank of India is the second large PSU quoting a loss this quarter, says Jignesh Shial of IDBI Capital Markets. He says on the asset quality front, there was expectation of some deterioration, but gross NPA at 5.4 percent is too much and the stock is likely to react.

Below is the verbatim transcript of Jignesh Shial’s interview with CNBC-TV18’s Sonia Shenoy and Anuj Singhal.Sonia: Looking like a very ugly set of numbers. What would your initial reaction be?A: The number doesn’t look okay. This is the second large PSU quoting a loss this quarter. This doesn’t seem to be a very decent quarter for the bank this time.Anuj: A word on asset quality, you have seen gross NPAs at 5.4 percent versus 4.07 percent.A: We were expecting some deterioration to come up considering the kind of volatility happening on the asset quality front for all the major PSU banks. However this is little ahead of what the expectations street had or even we had. So, probably the stock might react slightly negatively in that case.Sonia: This bank has had a very bad track record as well. There was significant worsening of asset quality even in the previous quarter. Given that trend doesn’t seem to be improving anytime soon. How much of a downside would you foresee in the stock?A: The problem with most of the PSU banks is that the valuation is suited to what numbers they are posting. Even on the adjusted book they are at 0.5-0.6 price to book. So, it is very difficult to project how much downside. There would be some pressure on the stock overall but that would remain in the comfortable valuation zone which it used to trade earlier as well.