OBC’s loan book grew in-line with our expectation of 4% qoq/11.7% yoy, largely driven by corporate segment. Corporate book reported a net addition of Rs25bn during Q3 FY13. All other segments witnessed healthy growth. The yoy credit growth momentum was strong in Retail (20.3%) and Agricultural (18%) segments. Management has guided 14-15% credit growth in FY13. Notwithstanding 10% sequential de-growth in bulk deposits, total deposits grew by 2.6% qoq. The rundown in bulk deposits was largely offset by robust accretion in Retail TDs (8.3% qoq) and Current Deposits (5.6% qoq). The share of Bulk deposits continued to decline from 22.1% of total deposits in Q2 FY13 to 19.4% in Q3 FY13. Muted growth in Savings deposits resulted in decline in CASA ratio by 26bps qoq, to 23.9%.
NIM rose by 5bps sequentially, quite close to our expectation of 7bps, to 2.84% in Q3 FY13. The marginal rise was the outcome of 14bps decline in CoF against 9bps decrease in YoF and increase in C/D ratio by 1ppt. We expect a further improvement in NIM, by about 10bps, aided by consistent shedding of bulk deposits and focus on relatively better yielding retail segment. Management has guided NIM of ~2.85% in FY13.
Asset quality has slightly weakened with marginal rise in GNPA ratio, from 2.92% in Q2 FY13 to 2.98% in Q3 FY13. Delinquency ratio rose from 2.2% in Q2 FY13 to 2.7% in Q3 FY13. Slippages were broad-based across all the segments of the loan book, with no chunky account in any of the segment. During the quarter, bank restructured advances worth Rs7.4bn, lower than expectations, on account of postponements in restructuring of Punjab SEB (Rs12bn) and Moser Baer (4.7bn). Another account, Suzlon, is expected to be restructured in Q4 FY13. Management has indicated restructuring of ~Rs22bn in Q4 FY13. During the quarter, Air India repaid Rs5bn. Bank provided Rs780mn for additional provision of 0.75% on existing restructured advances (as mandated by RBI) and Rs300mn towards provision for wage revision. Management believes that the restructuring of discoms will get over by the end of this fiscal and stress on asset quality is likely to subside from FY14 onwards. We expect an improvement in GNPA ratio and NNPA ratio from FY14 onwards.
Non-interest income reported robust growth of 28% yoy driven by healthy recoveries and trading gains. Cost/Income ratio increased by 40bps qoq to 41.5% in Q3 FY13. OBC has CAR and Tier I ratio of 12.3% and 9.1%, adequate to meet its planned expansion requirement in the near term.
Factoring in healthy margin, better asset quality outlook, robust non-interest income growth, adequate capitalization and attractive valuation of 0.8x FY15E P/Adj.BV, we upgrade the stock to BUY with target price of Rs372.
|(Rs mn)||Q3 FY13||Q2 FY13||% qoq||Q3 FY12||% yoy|
|Total Interest Income||44,687||44,146||1.2||41,965||6.5|
|Net Interest Income||12,044||11,571||4.1||11,399||5.7|
|Key Ratios||Q3 FY13||Q2 FY13||chg qoq||Q3 FY12||chg yoy|
|Yield on advances (%)||12.3||12.4||(0.1)||12.2||0.0|
|Cost of Deposits (%)||7.8||7.9||(0.1)||7.9||(0.0)|
|Cost of Funds (%)||6.9||7.1||(0.1)||7.0||(0.0)|
|Non-interest income (%)||23.9||26.0||(2.1)||20.6||3.3|
|Non-interest income/Interest exp (%)||11.6||12.5||(0.9)||9.7||1.9|
|Cost to Income (%)||41.5||41.1||0.4||42.4||(0.9)|
|Gross NPA (%)||3.0||2.9||0.1||2.9|