MOSL: BANK OF INDIA (Neutral) - Weak operating performance-asset quality improves sequentially

Bank of India: Weak operating performance; asset quality improves sequentially

(boi IN, Mkt Cap USD2.9b, CMP INR108, TP INR112, 4% Upside, Neutral)

• BOI reported a loss of INR39.7b, as provisions soared to INR66.7b (highest in eight quarters), led by elevated NPA provisions of INR67b (largely related to the RBI’s revised stressed asset guidelines). NII declined 26% YoY (10% miss, weighed down by INR10b of interest reversals), and other income fell 22% YoY due to treasury losses.
• NIM shrank 23bp QoQ to 1.65%. Loan growth was weak (-2.7% QoQ); however, retail loans grew 5.5%/14.4% QoQ/YoY. Deposits declined 1%/3.6% QoQ/YoY.
• Slippages increased sharply to INR129.7b, but recoveries and up-gradations increased to INR129.6b (v/s INR13.4b in the previous quarter), led by INR92b of recovery in loans against SBLCs. Write-offs of INR19.4b led to absolute GNPA/NNPA declining 3%/22% sequentially. OSRL book declined to INR76.3b (2.2% of loans) v/s INR106.3b in 3QFY18.
• Other highlights: a) INR92b of SBLC has been recovered during the quarter, with another INR5.2b to be recovered in 1QFY19. b) CASA deposits grew 4.3% QoQ, led by robust growth in CA deposits (+6.4% QoQ); reported CASA ratio increased by 107bp QoQ to 41.4%.
• FY18 highlights: The bank reported its third year of losses (INR60.4b) in FY18, as balance sheet stress remained elevated throughout the year and the bank provided to maintain its PCR at a healthy 55% (calculated). MTM provisions led by high bond yields added more pressure on profitability. Balance sheet growth remains weak, as the bank reported a contraction in loan book. However, the bank continues reporting healthy growth in its retail, MSME and agriculture books.