Bank of India: Weak operating performance; asset quality continues to deteriorate
(Boi IN, Mkt Cap USD4.4b, CMP INR145, TP INR150, 5% Upside, Neutral)
- BOI reported a loss of INR23.4b, as provisions soared to INR4.9b (highest in seven quarters), led by elevated NPA provisions of INR4.4b (largely related to NCLT and divergence accounts) and elevated MTM provisions on investments. NII fell 14% QoQ (13% miss due to ~INR4b of interest reversals) and other income fell 39% QoQ on weak treasury gains (-92% YoY).
- Slippages increased sharply to INR183.3b (5.1% annualized slippage ratio). The bank reported FY17 GNPA/NNPA divergence of INR140.6b/INR97.1b, leading to a PAT divergence of INR62.5b. Out of the divergence of INR140.6b, INR94.1b was on account of SBLCs issued by other banks, for which the bank is not required to make any additional provision, and which the bank expects to recover in 4Q. Out of INR94.1b, the bank has so far realized INR47.5b by invoking SBLCs of other banks.
- NIM shrunk 27bp QoQ to 1.88% due to a 28bp impact from ~INR4b of interest reversals. Loan growth declined to 3.7%/2.6% QoQ/YoY; however, retail loans grew 15.8% YoY.