Subdued credit growth is reflected in Bank of India's (BOI) third quarter performance. The bank's total interest income rose by just 2% in the December quarter. This was much lower than 11% and 7% growth recorded in the first and second quarter of the year respectively.
Income from operations
Net interest income
Operating Profit Margin (%)
Provisions and contingencies
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (m)
Diluted Earnings per share*
BOI's operating profits however, skyrocketed by 60% on the back of cost control exercise (VRS) initiated by the bank in FY01 and a steep decline in cost of deposits. The bank's total interest expenses declined by 2% in the current quarter and other expenses were higher by just 2%. The combined benefits led to a sharp rise in operating margins by over 300 basis points to 8.9%. BOI's cost to income ratio also reduced to 52% from 59% in 3QFY01. This was mainly due to lower staff costs.
During the quarter, the bank provided an amount of Rs 350 m towards writing off VRS expenses on pro-rata basis. Excluding this figure, other expenses of the bank would decline by 8% and cost to income ratio would come down to 47%.
A 23% rise in other income also contributed to 21% growth in the bank's earnings. The proportion of other income to total income increased to 14% from 12% in 3QFY01. With a slowdown in loan growth, banks are concentrating on fee based income (forex, cash management services) to sustain higher profit growth.
At the current market price of Rs 16 the scrip trades on a P/E multiple of 2x and Price/Book value ratio of 0.3x FY02 projected earnings. The government has agreed for return of capital to the extent of Rs 1.5 bn from the bank. This would reduce the bank's equity base to 488 m shares and improve its valuations further.
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