Bank of India's Q1FY19 results (Underperformer) - Slippage remains elevated
Q1FY19 results highlights
- BoI’s slippage of Rs62bn remained elevated even on a high base. Over 4Q17-3Q18 BoI’s slippage ranged from Rs18-40bn. In 1Q, the slippage run rate is higher. Also BoI has used the MSME dispensation given by RBI without which slippage would be higher by Rs10bn. Total reduction to GNPAs of Rs84bn was higher than slippage but recoveries were lower than write-offs. Write off in 1Q was Rs39bn against Rs20bn in the last two quarters. GNPAs stood at 16.7% of total loans.
- BoI’s PAT came in at Rs95M versus Rs88Mm yoy and loss qoq but there were too many adjustments. Also there was a tax write back of Rs0.8bn. Total adjustments account for Rs15.5bn as explained below adjusted for which the bank would have posted a net loss of Rs12-14bn.
- BoI changed its accounting policy on recoveries. The bank has changed the method of appropriation of recovery in NPAs where in recoveries are now being adjusted against unrealised interest, uncharged interest and lastly principal against the earlier policy of unrealized interest first then principal and uncharged interest last. This has resulted in income and GNPAs being higher by Rs2.1bn, provisions being higher by Rs1.6bn and pre-tax profit being higher by Rs0.4bn.
- There are too many special adjustments to make the profit look better than what it actually is: 1) Based on opinion from an independent expert, during the quarter, the bank has recomputed provision for Current Tax made in the earlier financial year, resulting in an increase in PAT of Rs5bn 2) Amount of MTM deferred is Rs8bn 3) Rs2bn of gratuity is still deferred. 4) Change in accounting for recoveries has added Rs0.5bn to PAT. These three items total up to a charge of Rs15.5bn.
- Loan loss provisions rose 5% yoy and remain elevated at 2.5% of loans.
Valuation and view:
Given another quarter of weak results, we maintain Underperformer despite cheap valuations. BoI has reported a PBT loss in 9 of the last 14 quarters since 4Q15. We do not see the bank coming out of RBI’s PCA framework anytime soon given its high level of NPLs.
Bank of India provides various banking products and services in India and internationally. Co. operates through Treasury Operations, Wholesale Banking, and Retail Banking segments. Co. accepts various deposit products, such as saving, current, term, and tax saving deposits; and offers home loans, property loans, education loans, vehicle loans, personal loans, pensioner loans, holiday loans, loans for vocational studies, housing loans to NRIs/ PIOs, trade finance, as well as provides deposit schemes for NRIs. It also offers cash management services, project finance and syndication services, and bullion banking services; credit, debit, and prepaid cards; and other services.
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