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Management meeting notes
ƒ IOB focusing on increasing loan and deposit market share
ƒ It expects lower credit costs on stronger recoveries
ƒ The bank expects to maintain NIM around 3% for FY12
ƒ IOB trades at 1x FY12E consensus ABV for FY12E ROE of 19%
We met the CMD of Indian Overseas
Bank (IOB), a mid-sized public sector
bank with over 2,200 branches and a loan
book of USD25b as of March 2011. We
present the key takeaways below.
Aiming for strong loan growth
IOB’s top management team under the
leadership of M Narendra, who joined as
CMD in November 2010, has been
focusing on improving asset quality and
driving strong loan growth backed by
increasing traction on CASA deposits.
1) IOB expects to track back strongly on the loan-book growth front. It
clocked credit growth of 41.6% for FY11 compared to 5.5% for FY10.
Management is guiding towards more than 25% growth for FY12. IOB’s
target over the next three years is to increase overall business (advances
+ deposits) to INR5,000b from INR2,570b for FY11 backed by increases
in branch and ATM count to 3,000 each and a CASA ratio of around 35%
(from 30% at present). The bank expects strong growth in its SME, midcorporate and education loan portfolio. A recent capital infusion of
USD235m by the Government of India has boosted its tier-1 ratio by
around 100bp. 2) The bank expects to maintain NIM around 3% for
FY12. IOB managed to improve NIM by 36bp y-y to 3.11% for FY11 by
shedding high-cost bulk deposits through FY10. 3) IOB expects noninterest income streams to also track strongly in-line with balance sheet
growth. Core fee income increased at 19% for FY11 compared to a 3%
decline in FY10. 4) On the opex front too, IOB expects the improving
trend to continue as it had been aggressively providing for pension
liabilities, and anticipates lower provisions going forward. IOB managed
to improve cost-income and cost-asset ratios to 47% and 1.7%
respectively for FY11, compared to 57% and 2% in FY10. Backed by all
this IOB is targeting a PAT of INR25b for FY12 compared to INR10.7b for
FY11.
Strong recoveries to lower credit costs, says IOB
Increased slippages, particularly in real estate and textile sectors
impacted IOB significantly in FY10, dragging GNPL to INR36b from
INR19b in FY09. However, IOB has seen the trend improve over the last
few quarters and expects credit costs to come down. Recoveries and
upgradation increased to INR17b for FY11, from INR12b each in FY09
and FY10. The restructured loan book has stayed flat over FY11
dropping to 6.2% of overall loan book from 8.9% in FY10. IOB is aiming
at reducing GNPL to INR20b for FY12, from INR31b in FY11.
Valuation
IOB currently trades at 1.0x FY12E ABV for FY12E ROE of 19%, based
on Bloomberg consensuses
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Management meeting notes
ƒ IOB focusing on increasing loan and deposit market share
ƒ It expects lower credit costs on stronger recoveries
ƒ The bank expects to maintain NIM around 3% for FY12
ƒ IOB trades at 1x FY12E consensus ABV for FY12E ROE of 19%
We met the CMD of Indian Overseas
Bank (IOB), a mid-sized public sector
bank with over 2,200 branches and a loan
book of USD25b as of March 2011. We
present the key takeaways below.
Aiming for strong loan growth
IOB’s top management team under the
leadership of M Narendra, who joined as
CMD in November 2010, has been
focusing on improving asset quality and
driving strong loan growth backed by
increasing traction on CASA deposits.
1) IOB expects to track back strongly on the loan-book growth front. It
clocked credit growth of 41.6% for FY11 compared to 5.5% for FY10.
Management is guiding towards more than 25% growth for FY12. IOB’s
target over the next three years is to increase overall business (advances
+ deposits) to INR5,000b from INR2,570b for FY11 backed by increases
in branch and ATM count to 3,000 each and a CASA ratio of around 35%
(from 30% at present). The bank expects strong growth in its SME, midcorporate and education loan portfolio. A recent capital infusion of
USD235m by the Government of India has boosted its tier-1 ratio by
around 100bp. 2) The bank expects to maintain NIM around 3% for
FY12. IOB managed to improve NIM by 36bp y-y to 3.11% for FY11 by
shedding high-cost bulk deposits through FY10. 3) IOB expects noninterest income streams to also track strongly in-line with balance sheet
growth. Core fee income increased at 19% for FY11 compared to a 3%
decline in FY10. 4) On the opex front too, IOB expects the improving
trend to continue as it had been aggressively providing for pension
liabilities, and anticipates lower provisions going forward. IOB managed
to improve cost-income and cost-asset ratios to 47% and 1.7%
respectively for FY11, compared to 57% and 2% in FY10. Backed by all
this IOB is targeting a PAT of INR25b for FY12 compared to INR10.7b for
FY11.
Strong recoveries to lower credit costs, says IOB
Increased slippages, particularly in real estate and textile sectors
impacted IOB significantly in FY10, dragging GNPL to INR36b from
INR19b in FY09. However, IOB has seen the trend improve over the last
few quarters and expects credit costs to come down. Recoveries and
upgradation increased to INR17b for FY11, from INR12b each in FY09
and FY10. The restructured loan book has stayed flat over FY11
dropping to 6.2% of overall loan book from 8.9% in FY10. IOB is aiming
at reducing GNPL to INR20b for FY12, from INR31b in FY11.
Valuation
IOB currently trades at 1.0x FY12E ABV for FY12E ROE of 19%, based
on Bloomberg consensuses
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