Bank of India's Q4FY18 results (Underperformer) - Yet another quarter of loss

• BoI reported a higher than expected loss of Rs40bn on the back elevated slippages. Pre-tax loss was even higher at Rs55bn and the bank had a tax write back of Rs15bn. While slippage was much higher than expected, gross NPLs declined marginally qoq as the bank recovered Rs92.4bn of loans issued against SBLCs which were downgraded to NPLs in 3Q. The bank had communicated (through the press) that it had made this big recovery, much before the actual result was announced, so the recovery does not come as a surprise. BoI once again reported a below average result with a big loss, lowest ever NIM, continued decline in loans and assets, higher than sector slippage and a watch list which is higher than that of other banks at 3.5% of loans. The bank has deferred NCLT provision of Rs4bn, gratuity of Rs3.3bn and MTM loss of Rs10.4bn to FY19, otherwise loss would have been much higher.
• Slippage for the quarter came in at Rs130bn/14% of lagged loans, which was uncomfortably high. Of the total slippage, Rs51bn was on account of RBI’s Feb.12 circular. About 66% of the total slippage i.e. Rs86bn came from the corporate segment and Rs44bn from RAM (Retail, Agri & MSME) segment. GNPAs remain uncomfortably high at 16.5% and total stress loans remain higher than 20%.
• Of the total SBLC linked loans of Rs98bn that slipped in 3Q, BoI recovered Rs92.4bn in 4Q, and expects the remaining Rs5.3bn to be recovered in 1Q19. In addition some of the non SBLC accounts that were part of divergence disclosed in 3q18 with exposure of Rs.15bn achieved DCCO during 4Q18 and hence upgraded in the current quarter.
• Loan loss provisions rose 49% yoy and 53% qoq to Rs67bn on the back of higher slippage and ageing provisions. Provisioning cover improved sharply from 44% to 55% qoq because the bank had made no provisions on SBLC linked loans that slipped in 3Q. As these were upgraded in 4Q, provisioning cover on the remaining book improved. Due to this adjustment, net NPLs fell 22% qoq to 8.3% from 10.3%. Management guided to a watch list of Rs120bn or 3.5% of loans which is higher than SBI’s 1.3% and BoB’s 2%.

Valuation and view:

Given another quarter of weak results and a large watch list, we maintain Underperformer despite cheap valuations. BoI has reported a loss in 8 of the last 13 quarters since 4Q15. We do not see the bank coming out of RBI’s PCA framework anytime soon given its high level of NPLs.