Oriental Bank of Commerce - Lackluster Quarter; Result Update Q3FY15 ::Edelweiss

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Oriental Bank of Commerce’s (OBC) Q3FY15 PAT came in subdued at INR0.2bn way below our estimates, as higher provisions coupled with muted operating performance offset higher treasury gains and tax adjustment of earlier years. Key highlights: 1) revenue remained tepid (NII up 5.4% YoY), given lower loan growth (mere 5.5% YoY) and below-trend NIMs, though up 6bps QoQ to 2.69%; 2) stress asset creation increased with slippages rising to INR13.4bn (3.9%) and fresh restructuring at INR20bn taking outstanding stress pool (GNPA + restructured) to 18%; 3) reversal of earlier gains booked on ARC sales coupled with higher NPL related provisions weighed on profitability; and 4) balance sheet consolidation continued, with both advances and deposits registering below-industry growth. Considering higher stress and extraordinary item, we prune our FY15/FY16 estimates by 30%/11%. OBC’s volatile asset quality and our annual report analysis findings keep us vigilant.

Slippages high; modest recoveries push up GNPLs

Slippages during Q3FY15 stood higher at INR13.4bn (INR9.8bn Q2FY15), largely due to slippages from restructured book (at INR7.31bn). Lower upgrades/recoveries at INR2.8bn (versus run rate of INR3.7bn over past few quarters) pushed up GNPLs to INR76.7bn (up 48% YoY). Management expects Q4FY15 slippages to be around INR 10bn. Restructuring at INR20bn (top-3 accounts contributed INR12bn) took outstanding standard restructured book to ~INR179bn (12.7%, borrower-wise classification). Further, management has guided a restructuring pipeline of INR20bn. Stress pool at ~18% (at higher end of PSBs) keeps us vigilant.

LINK
https://www.edelweiss.in/research/Oriental-Bank-of-Commerce--Lackluster-Quarter;-Result-Update-Q3FY15/10005514.html