Bank of India share price: Sharekhan maintains Hold rating with a revised price target of Rs 68

Bank of India (BOI) posted mixed results with operational numbers below estimates. Asset-quality performance was also encouraging. NII stood at Rs 3739.5 cr, down 9.2% yoy and down 9.1% qoq. However, the rise in operating expenses stood at Rs 2971 cr, up 19.5% yoy and up 13% qoq, which resulted in PAT missing estimates. PAT came at Rs 540 cr, up 2.8% qoq and much higher on a yoy basis. Asset-quality performance was enthusing; proforma gross NPA and net NPA (as per IRAC norms) would have been at 14.59% / 3.73%, which is only marginally up from reported GNPA/NNPA of 13.25%/2.46%.

Bank of India has made a provision of Rs 1162.15 cr (including unrealised interest) for proforma NPA accounts. Currently, the provision coverage ratio (PCR) of the bank at 89.32% provides investor comfort. Provisions include Rs 761.60 cr provisioning made in respect of proforma NPA and other provision, which is over and above the requirement. Share price of Bank of India is trading flat at Rs 60.50 today. 

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Bank of India’s Global net interest margin (NIM) fell by 8 bps from 2.66% in Q2 FY21 to 2.58% in Q3 FY21, down 40 bps yoy. Domestic NIM also contracted to 2.81% in Q3 FY21, down 7 bps from Q2 FY21. Business traction was healthy, with domestic advances rising by 9.10% yoy, as against domestic deposits growth of 18.2% yoy.

Sharekhan believes asset quality headwinds are likely to be key monitorable in the medium term as well. Hence, while high PCR and expected recovery may soften the impact, we expect asset-quality niggles to continue to impact FY2021 performance. Moreover, with weak capitalisation (Tier 1 at 9.44%) Bank of India has little elbowroom. Hence, capital conservation mode is likely. Sharekhan has fine tuned their estimates. Sharekhan maintains a Hold rating on the stock with a revised price target of Rs 68.

Bank of India Key positives:

Domestic CASA deposits recorded 12.04% y-o-y growth. The share of CASA deposits improved from 39.49% in September 2020 to 40.61% in December 2020

Bank of India Key negatives:

Global net interest margin (NIM) fell by 8 bps from 2.66% in Q2 FY21 to 2.58% in Q3 FY21. Domestic NIM stood at 2.81% in Q3 FY21 compared to 2.88% during Q2 FY21
Cost-to-income ratio (global) increased to 51.17% in Q3 FY21 from 45.91% in Q2 FY21 due to increased wage bill and provisions towards pension and gratuity

Bank of India Key risk:

Risk of further NPAs cropping up, especially in the corporate, agriculture, and/or retail segments due to prolonged recovery would impact growth and profitability