Indian Overseas Bank Equity Analysis

Revises credit growth to 15% from earlier expectation of 20% in FY10

Indian Overseas bank has come out with financial performance for the quarter ended December 09 and has conducted Analyst meet in Chennai on 28 January 2010. S A Bhat - Chairman and Managing Director, Nupur Mitra – Executive Director and Y L Madan – Executive Director of Indian Overseas bank addressed the meet: Highlights of the meet are: Total business of the bank has increased by 14% to Rs 185656 crore in the quarter ended December 09 as against Rs 162575 crore in the corresponding previous year. The total deposits of the bank has increased from Rs 90866 crore as on quarter ended December 08 to Rs 106249 crore in the quarter ended December 09, reporting an increase of 17% on y-o-y basis. Advances of the bank has grown up by 11% to Rs 79408 crore in the quarter under review as against Rs 71709 crore in the corresponding previous quarter. The Credit to deposit ratio of the bank has declined marginally to 74.74% in the quarter under review as against 78.32% in the corresponding previous year. The total investment book of the bank stood at Rs 35426.62 crore as on quarter ended December 09. Bulk of the Investment book, ie. 70% lies in HTM category and the duration of AFS is 2.6 years. The SLR portfolio of the bank as on quarter ended December 09 amounted to Rs 30021.45 crore. NIM of the bank has declined to 2.69% in Q3FY10 as against 2.72% in Q3FY09. The Cost of deposits of the bank has declined to 5.99% in Q3FY10 as against 6.60% in Q3FY09. The yield on advances of the bank has also declined to 9.87% in quarter ended December 09 as against 10.68% in the corresponding previous quarter. CASA ratio of the bank has marginally improved to 29.95% in the quarter under review as against 29.23% a year ago. This was on the back of sharp decline in the current account deposits in the quarter under review. The bank has earned treasury income of Rs 17 crore in Q3FY10 compared to Rs 382 crore for the same period last year, on the back of hardening yields. On the other hand, exchange commission and other income of the bank has improved to Rs 135.63 crore in Q3FY09 as against Rs 127.84 crore in the corresponding previous quarter. Credit sanctioned but yet to be disbursed by the bank was to the tune of Rs 15000 crore, of which only Rs 5000 crore has been disbursed in the last nine months. Capital Adequacy ratio of the bank under Basel II norms stood at 14.64% with Tier I capital of 8.57% as on quarter ended December 09. The total capital funds of the bank has improved from Rs 10394.84 crore as on quarter ended December 08 to Rs 11802.20 crore as on quarter ended December 09 owing to raising of Tier I and Tier II bonds aggregating to Rs 1100 crore apart from retention of profits. Business per employee of the bank as on quarter ended December 09 stood at Rs 6.89 crore as against Rs 6.37 crore a year ago. The book value of the bank as on quarter ended December 09 stood at Rs 112.57 per share as against Rs 105.12 per share as on quarter ended December 08. The % of Gross NPA to Gross Advances of the bank has increased to 4.05% in Q3FY10 as against 3.42% in Q2FY10 and 2.40% in Q3FY09. On the other hand, the % of Net NPA's to Net Advances has also increased to 2.17% in Q3FY10 as against 1.59% in Q2FY10 and 1.3% in Q3FY09. The slippage ratio of the bank in the quarter ended December 09 was 2%. The provision coverage ratio of the bank stood at 53.32% for the quarter ended December 09. The bank expects to sell 15-20% of bad debts to Asset Reconstruction Companies provided they get 60% realization of asset value Of the total amount of Rs 8,200 crore restructured loans Rs 745 crore pertained to bad loans, of which Rs 600 crore of assets would be upgraded to standard assets. The bank has not restructured any assets in the quarter under review. The total no of branches & ATM's of the bank as on quarter ended December 09 was 1973 and 700 respectively. Outlook: The management has revised previous target of 20% increase in both advances and deposits of the bank to 20% increase in deposits and 15% increase in advances for FY10. The bank expects NIM to be maintained at 2.75% for FY10. The management is focusing to increase its share of CASA to 32% in the coming quarters. The bank plans to add 50 more branches and 300 ATM's in Q4FY10.