`Oriental Bank of Commerce (OBC) has reported a healthy growth in profits and interest income for the quarter ended June 2002. The bank's net profits increased by 20%, backed by 19% growth in net interest income and a sharp improvement in operating margins.
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*
OBC has a diversified loan portfolio with small and medium enterprise accounting for major portion of its lending. It is foraying aggressively into housing finance market (9% of total loan portfolio in FY02 as against 4% in the previous year). The bank has also increased its exposure to commodity sector to 13% (4% in FY01) foreseeing the revival in commodity prices. These initiatives would have fueled its loan disbursements in the current quarter and consequently higher growth in core interest income.
The bank has strong presence in North Indian states of Punjab, Haryana and Uttar Pradesh. These states are currently facing drought condition due to lower than normal rains. If the condition prevails throughout the year, then the bank could face a problem of loan recovery and its asset quality could get affected towards the year end.
Interest on advances
Income from investments
Interest on balance
During the quarter, the bank managed to improve operating margins by nearly 300 basis points due to its cost control measures and lower interest cost. OBC's cost to income ratio declined to 41% in June quarter from 45% in the comparable previous quarter. Its non-interest income however, recorded a marginal growth of 5%. Its forex income which accounts for about 8% of fee-based income has remained stagnant over the last five years and is likely to face challenges from private banks in the coming years. This could trim overall growth in fee based income.
At the current market price of Rs 43, OBC is trading at a P/E of 2x 1QFY03 annualised earnings and adjusted price to book value ratio of 0.7x. The bank's valuations are one of the lowest compared to frontline public sector banks. OBC's slow technology implementation and low visibility about future growth prospects is impacting its valuations. In the coming years, to maintain strong growth in business, it would have to become more proactive and expand its reach.
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