CBOI’s loan portfolio grew by 2.3% sequentially, versus our expectation of 1%. Retail segment being the main growth driver with 19% growth qoq. However, corporate book witnessed a sequential decline of 6.4%. This has led to a structural shift in the portfolio mix from 66/34 (Corporate/Retail) in Q4 FY12 to 60/40 in Q1 FY13. Management indicated to maintain focus of retail lending going forward. Deposit growth was marginally up by 0.4% driven by 1% growth in Term Deposits, which was partially offset by 0.8% decline in CASA. Resultantly, CASA ratio declined by 39bps to 32.9% in Q1 FY13. Fall in CASA deposits is attributable to Current Deposits that recorded a decline of 14.5% sequentially. However, 2.6% qoq increase in Savings deposits managed to buck the steep fall in CASA ratio. Growth in high-cost bulk deposits by 6.1% qoq was daunting. However, this concern was partially offset by the bank’s efforts to run down the CDs by 17.8% qoq. Overall, the deposit profile continues to be weak with ‘High-cost Bulk Deposits + CDs’ accounting for 31.3% of the total deposits. Management has guided to grow it loan book and deposits by 17% and 14% respectively in FY13.
NIM rose by mere 5bps, compared to our expectation of 20bps. The rise was aided by an improvement in C/D ratio by 1ppt. However, the rise was restricted to single digit owing to 10bps rise in Cost of Deposits. With perturbing asset quality and weak deposit franchise we expect margin to remain under pressure in the near term. However increasing focus on high-yielding Retail lending and consistent shedding of high-cost CDs may revive NIM by the end of FY13. Management expects NIM to be around 3% during H2FY13.
Asset quality remained weak with GNPA ratio of 4.87%, up by 4bps sequentially as against our expectation of marginal decline. Although delinquency ratio stood at 3.8% compared to 10% in Q4 FY12, still it is above the normalized run-rate of 2%. PCR continued to be weak at 40.8%. As on Jun’2012, outstanding restructured advances stood at Rs206.9bn (13.4% of total advances) highest in the industry. During the quarter, bank restructured accounts worth Rs26.7bn. Notwithstanding high slippages and restructuring, bank’s credit cost remained lower around 1%, thereby shooting the profitability. Exposure to infrastructure and power (within infrastructure) is still high at 21.3% and 14.3% respectively.
Income from CEB rose by ~29% yoy. However, sequentially it was down owing to seasonality. Recovery from w/off accounts was weak at Rs280mn in Q1 FY13. On yoy basis, Non-interest income grew by 14.2%. C/I ratio witnessed an improvement by 10.5% qoq, from 63.9% in Q4 FY12 to 53.4% in Q1 FY13, due to sequential decline of 16.2% in operating expenses.
CBOI’s capitalization is weaker compared to its peers, given only 7.6% of Tier 1 capital as on Jun’2012. This entails the need to raise capital in the short-term, at a time when market conditions are not very conducive.
Although bank posted higher profitability in the current quarter, it was the outcome of lower provisioning. Thereby, it will be difficult for the bank to sustain such profitability in the subsequent quarters, keeping in mind the current low PCR of ~41%. Given the bank’s fragile asset quality, lower profitability, we maintain SELL rating on the stock with 9-month target price of Rs58 implying a downside of 15.8%.
|(Rs mn)||Q1 FY13||Q4 FY12||% qoq||Q1 FY12||% yoy|
|Total Interest Income||53,026||49,401||7.3||45,583||16.3|
|Net Interest Income||13,777||12,636||9.0||13,304||3.6|
|Key Ratios||Q1 FY13||Q4 FY12||chg qoq||Q1 FY12||chg yoy|
|Yield on advances (%)||11.2||11.1||0.0||11.4||(0.2)|
|Yield on investments (%)||7.6||7.8||(0.3)||7.1||0.4|
|Cost of Deposits (%)||7.5||7.4||0.1||6.8||0.7|
|Non-interest income (%)||19.0||25.5||(6.5)||17.5||1.5|
|Non-interest income/Interest exp (%)||8.2||11.7||(3.5)||8.7||(0.5)|
|Cost to Income (%)||53.4||63.9||(10.5)||50.9||2.5|
|Gross NPA (%)||4.9||4.8||0.0||2.3||2.6|