Motilal Oswal Securities Reports on Bank of India

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 Bank of India’s (BOI) 2QFY15 PAT of INR7.9b (up 26% YoY) was in line with

estimate. Higher-than-expected NIM (+15bp QoQ) and lower provisions were

compensated by lower-than-estimated non-interest income (12% below).

 Outstanding standard restructured loans increased to INR117.3b (2.94% of loans)

v/s INR106.2b (2.78%) a quarter ago. Fresh additions to restructured loans stood

at INR13.58b v/s INR16.3b a quarter ago. Net slippages (excluding sale to ARCs)

stood at INR18.5b (2.2% annualized) v/s INR21.2b (2.74%) a quarter ago.

 Domestic NIM improved 28bp QoQ to 2.73%, driven by 57bp QoQ increase in yield

on loans and asset relocation from investments to loans. Domestic cost of funds

increased 35bp QoQ to 6.85%. International NIM declined 8bp QoQ to 1.32%.

 Other highlights: (1) Bank sold loans of INR1.3b to ARCs in 2QFY15 (INR5.8b in

1Q), (2) core fee income grew 16% YoY (down 4% QoQ), (3) loans grew 5% QoQ

(+18% YoY) led by strong international loan growth of 9% QoQ (+26% YoY) and (4)

domestic loans grew 3% QoQ (+15% YoY) led by strong growth in Agri, +9% QoQ

(+24% YoY), and SME segment, +7% QoQ (+22% YoY). Corporate loans grew 11%

YoY (flat QoQ).

 Valuation and view: Asset quality performance on a QoQ basis improved, though

stress additions remain high. Historically, BOI’s asset quality remained volatile and

we would wait for some more quarters for clarity to emerge. We raise the

earnings estimates by ~4% for FY15E to factor the better-than-expected NIM. Our

key concerns are (a) strong growth outlook by management despite low CET1

(~7%), (b) low return ratios of 0.5/0.6% for FY15E-17E and RoE of 12-13% and (c)

significant volatility in asset quality performance. Maintain Neutral.