BoI: Capital restructuring to benefit - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

BoI: Capital restructuring to benefit

Apr 1, 2002

In an ongoing restructuring process, Bank of India (BoI) has reduced its capital base to Rs 4.9 bn from Rs 6.4 bn by returning Rs 1.5 bn to the Reserve Bank of India (RBI) in cash. The bankís move is likely to shore up itís earning per share and book value significantly in FY02. BoI had plans to return Rs 3 bn, but a contentious provision, which was incorporated in 1995, in the Banking Companies (Acquisition and Transfer of Undertakings) Act, prevented it from doing so. As per provisions of the said Act, the paid-up capital of a public sector bank should not drop below 25% of its capital from the day the amendment to the Act was passed.

In the case of BoI, its capital, when the provision was incorporated, stood at Rs 19.5 bn (including losses carried forward and not written off). Consequently, BoI's capital, technically, cannot drop below Rs 4.9 bn at any given point of time.

The bank reported encouraging financial performance for the first nine months of FY02. Although its interest income registered a slower growth of 6.6%, net interest income registered a double-digit growth on the back of a sharp (more than proportionate) decline in cost of borrowings. Also, cost control measures initiated by the bank (like VRS) in the previous years helped the bank in achieving higher pre tax profits. The bank took the advantage of higher profits to write off non-performing assets, which resulted in 67% rise in total provisions of the bank.

Financial snapshot
(Rs m)9m FY019m FY02Change
Interest Income 39,100 41,693 6.6%
Other Income 4,950 6,804 37.5%
Interest Expenses 26,970 27,814 3.1%
Net Interest Income 12,130 13,879 14.4%
Other Expenses 11,030 11,036 0.1%
Profits Before Tax 6,050 9,647 59.5%
Provisions & Contingencies 3,320 5,539 66.8%
Profits After Tax 2,730 4,108 50.5%
Equity shares (m) 638 638

A 400 basis points jump in the bankís operating margins was contributed by reduction in cost of borrowings and operating expenses. Similarly, cost to income ratio decline to 53% with savings in employee cost. A 38% rise in fee-based income increased the contribution of other income to total income to 14%. However, the ratio is still on the lower side compared to its peers in the sector.

Key ratio analysis
Particulars9m FY019m FY02
OPM (excl. other income)2.8%6.8%
Cost to income ratio64.6%53.4%
Other income to total income11.2%14.0%
EPS (Rs)*5.78.6
EPS after reduction in share capital*- 11.2
Adjusted Price/Book value ratio-1.2

The paring of capital base is likely to improve the bankís valuations. Its earnings per share on 9m FY02 annualized basis will increase by 31% to Rs 11.2. With number of shares reducing to 489 m, the bankís adjusted book value has also increased significantly to about Rs 21 for FY02 projected earnings. At the current market price of 25, the stock is trading at a P/E of 2.2x 9 months annualized earnings. Its adjusted price to book value ratio (after removing the net non-performing assets, on a conservative basis) of 1.2x is in line with its public sector peers in the industry. In the last two months the scrip has soared by over 50% from the date it declared its third quarter results.

Equitymaster requests your view! Post a comment on "BoI: Capital restructuring to benefit". Click here!


More Views on News

BANK OF INDIA Announces Quarterly Results (2QFY20); Net Profit Up 123.0% (Quarterly Result Update)

Nov 4, 2019 | Updated on Nov 4, 2019

For the quarter ended September 2019, BANK OF INDIA has posted a net profit of Rs 3 bn (up 123.0% YoY). Sales on the other hand came in at Rs 107 bn (up 9.1% YoY). Read on for a complete analysis of BANK OF INDIA's quarterly results.

How the YES Bank Collapse Unfolded - 10 Points (Sector Info)

Mar 9, 2020

A timeline of how YES Bank went from a stock market darling to a pariah.

Today's Stock Market Crash: 10 Points (Sector Info)

Mar 6, 2020

Top factors that dragged the markets lower today.

BANK OF INDIA Announces Quarterly Results (1QFY20); Net Profit Up 155.1% (Quarterly Result Update)

Jul 31, 2019 | Updated on Jul 31, 2019

For the quarter ended June 2019, BANK OF INDIA has posted a net profit of Rs 2 bn (up 155.1% YoY). Sales on the other hand came in at Rs 103 bn (up 3.2% YoY). Read on for a complete analysis of BANK OF INDIA's quarterly results.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 28, 2020 (Close)


  • Track your investment in BANK OF INDIA with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks