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MOSL: ORIENTAL BANK OF COMMERCE (Neutral)-Another weak quarter-Stress addition increases to AQR levels

​Oriental Bank of Commerce: Another weak quarter; Stress addition increases to AQR levels

(OBC IN, Mkt Cap USD0.6b, CMP INR163, TP INR150, 8% Downside, Neutral)

• OBC reported loss of INR12.2b (~2x of FY15 and FY16 PAT combined) v/s est. loss of INR1.1b, primarily due to elevated credit costs of INR30.5b (8.2% annualized, highest in the history of the bank). Asset quality remains under pressure, led by elevated stress additions (INR39b v/s INR27b in 3Q) and muted recoveries/upgrades.
  
• Overall pool of NSL (NNPA+ OSRL+ all other forms of stress) was stable QoQ at ~14.5%; large relapse into NPA from restructured portfolio (INR9.4b) and SDR/S4A accounts (8 accounts amounting to INR16.9b). Steel accounted for 28% of overall slippages. This sector already has 68% NPA, and management does not expect incremental large slippages from this book. Absolute GNPAs increased 12% QoQ, but remained stable in % terms at 13.7% due to strong sequential loan growth (11%) and large write-offs (INR11b).
  
• NII grew 21% QoQ to INR13b (in-line), led by NIM improvement of ~40bp QoQ to 2.5%. NIM was aided by a sharp fall in CoF of ~38bp QoQ.
  
• FY17 highlights: (1) Operating profit for FY17 grew 13% YoY; however, high NPL provisions of ~57b led to pre-tax loss. (2) Overall gross advances grew 8.3%, with strong growth in retail loans of ~37.2%.
  
• Other highlights: (1) Trading gains declined 70% QoQ, driving 15% miss in other income. (2) CASA ratio declined 180bp QoQ to 30.5% owing to redemption of temporary SA deposits (-6% QoQ) built up post demon. (3) CET1 declined 113bp, led by large quantum of losses during the quarter.