Bank of India's Q3FY19 results (Underperformer) - Big loss, but ex ILFS, slippages ease

Q3FY19 results highlights

• BoI reported its highest ever loss of Rs47bn (loss in 2Q was 11.5bn) driven by high loan loss provisions. The bank made provisions of Rs56bn on NPL+NCLT accounts due to uncertainty of recovery. The bank also had to make divergence related provisions of 14bn.
• Slippage of Rs43bn was higher than Rs38bn qoq but most of it was on account of IL&FS. Of the total exposure of Rs36bn to ILFS, Rs24bn slipped. Ex ILFS slippage was Rs19bn, lowest since 3Q14.   Due to sale to ARC and write offs, reduction to NPLs of Rs51bn were higher than Rs28bn qoq. GNPAs declined 1% qoq to 16.31%.
• Loans declined 2% yoy and 0.8% qoq. While retail loans grew strongly at 18% yoy and 6% qoq, foreign loans declined sharply and growth in agri and SME was modest.
• NIM expanded 28bp qoq to 2.55% due to change in method of accounting for bad loan recoveries which resulted in higher interest of Rs2bn but higher provisions of Rs1.4bn as well. Due to higher NIM, NII grew 33% yoy and 14% qoq though loan growth was flat.
• While fees declined yoy, recovery in written off accounts and ARC proceeds led to a strong growth in overall non-interest income that grew 60% yoy and 62% qoq.
• Core operating profit grew 73% yoy and 19% qoq.
• Provisions for NPAs jumped sharply to R91bn from Rs28bn qoq. The bank made additional provision of Rs.51bn in view of uncertainty of recovery and deterioration in value of underlying assets in respect of 331 NPA accounts. Further, the bank made Rs5bn of provisions on NCLT 1&2 accounts to take the cover to 100% due to uncertainty of recovery. On NCLT accounts outside of list 1&2, the cover is 80%. The bank received its divergence report. The divergence on GNPAs was low at Rs2.5bn but the provisioning divergence was big at Rs14bn which also contributed to the higher provisioning during the quarter. High NPL provisioning resulted in a pre-tax loss of Rs67bn and after tax write-backs, net loss was Rs47bn. With higher provisions, the provisioning cover improved to 68% from 58% qoq.

Valuation and view:

Given another quarter of weak results, we maintain Underperformer despite cheap valuations. We do not see the bank returning to healthy RoAs throughout our forecast period. The bank received capital infusion of Rs101bn from the government in 3Q.