Good show fails to lift Oriental Bank stock

Aaron Chaze

One performance that went relatively unnoticed was that of the New Delhi- based Oriental Bank. The bank reported what was easily the best performance among all public sector banks. The topline was up by 32 per cent, operating profit went up and spreads were more or less maintained. Even net profit was higher by 12 per cent, despite a 36 per cent increase in provisions for non-performing assets (the net NPA ration remained unchanged at 4.5 per cent). Even the bank's deposits (higher by 35 per cent) and advances were up, while most other banks chose to suppress their growth in liabilities.

The first quarter result came close on the heels of an equally good performance in the last quarter of the year ended March 1999, where there was a strong growth in deposits and advances. For the second half of the last financial year, deposits were higher by 16 per cent, while advances were higher by 14 per cent, against 6.7 per cent in the corresponding quarter in the first half of 1998-99.

Despite this vastly improved performance, the OBC stock did not respond, but for a brief rally on the day the Q1 result was announced. Subsequently, it suffered from a bout of selling. "The reason for the selling in OBC is the possibility of a public issue being announced soon," says Jignesh Shah, banking analyst with Triumph Securities.

The chairman of the bank had recently hinted at the possibility of an equity, though subsequently there has been no announcement from the bank, regarding the timing, quantity or pricing of that issue. The anticipation within market circles is that the pricing of the issue will be on the lower side; hence the hesitation to bid up the price of the stock just now, in addition to the uncertainty over the details. Further, analysts are anticipating that the prime reason for an issue at this point is aimed at reducing the government's stake in the bank probably to 51 per cent. The present capital adequacy ratio is very comfortable at 14.1 per cent (the RBI requirement is a 10 per cent CRAR by March 2000, ruling out an issue of shares for this reason.

The rest of this year is also expected to remain good for Oriental Bank. The fact that advances were up by another 15 per cent means that there will be a good growth in income for the next accounting period. Further, the bank has been able to maintain its spreads (spreads have dropped by 30 basis points, while most PSU banks have reported a fall in spreads by 100 basis points. "The reason OBC is able to do this is because of its focus on semi-urban and rural areas, which means that it is not unduly worried cutting its PLR; it caters to a niche segment" says Shah. Further, the bank has embarked on internal restructuring, appointing a number of consultants for improving various aspects of its operations. For example, Price WaterhouseCoopers (PwC) has been appointed to advise the bank on its asset liability management system, Tata Consultancy for integrating its accounting system and Andersen & Co for a report on its cost structure.

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