Bank of India (BOI) reported 2QFY11 PAT at Rs6.2bn, up 91% yoy, but 16% below GSe. Key highlights: Asset quality: (1) Total provisions were 50% higher than GSe in 2Q at Rs5.3bn (+37% qoq) on (a) Rs1.6bn of floating provisions to meet RBI’s 70% coverage norm, and (b) NPL provisions of Rs2.9bn (down 7% qoq, 0.6% of avg. loans). We maintain our FY11E estimate of 0.55% of provisions/avg. loans vs. 1.1% for FY10. (2) Restructured loans declined 1% qoq to Rs100bn (5.5% of loans) with incremental restructuring contained at Rs3.5bn (0.8% of loans). Gross NPLs remained flat qoq (2.6% of loans), implying impaired loans are 8.2% of total loans. (3) Slippages in 2Q were Rs8.2bn, annualized ratio of 2.2% to opening advances vs. 1.7% in 1Q and 4.2% in 4Q. (4) NII was up 26% yoy (in line with GSe), driven by 23% yoy loan growth and 24bp yoy rise in NIM to 2.81%. Domestic CASA at 33.5% up 110bp qoq. (5) Core fees were up 21.4% yoy (16% ahead of GSe), while forex fees were lower.
BOI is trading at current valuations (1.8X FY11E P/BV, 9.5X FY11E P/E) fully reflect: (1) the likely improvement in asset quality given a strong economy and already-high slippages; and (2) high growth/uptick in return ratios from a low base
