As bad loans rise, Bank of India’s Q3 net falls 70%

MD says muted credit growth contributed to lower operating profit

Bank of India on Thursday reported a 70% drop in its net profit for the quarter ended December, falling from R585.82 crore in the same period last year to R173.38 crore this fiscal.

Net interest income (NII), the difference between interest earned and interest expended, rose to R2,780 crore, a year 2.24% year-on-year rise. Total income was R11,947.45 crore, a 9.95% rise on a y-o-y basis.

Non-interest income, meanwhile, dropped nearly 2% y-o-y to R1,079.69 crore. Net interest margins (NIM) fellb33 basis points (bps) to 2.56%, compared to 2.89% in the year -ago period.


Operating profits witnessed a 12.99% drop to R1,865.38 crore, compared to R2143.98 crore in the year-ago period. “A muted credit demand on the domestic side has contributed to a lower operating profit,” said VR Iyer, chairperson and managing director, Bank of India.

Asset quality worsened with a 53 bps rise in gross non-performing assets (NPA), which increased to 4.07% of gross advances, compared to 3.54% in the previous quarter. On a y-o-y basis, the figure was up by 126 basis points.

Net NPAs stood at 2.50% of net advances, compared to 2.32% in the previous quarter and 1.75% in the third quarter of FY14. Provisions (other than tax) and contingencies stood at R1,580.72 crore for the quarter, compared to R963.43 crore in the quarter ended September 2014. “Banks have started maintaining some caution towards lending. This coupled with the RBI’s measures will help in reducing the NPAs towards the second half of FY16,” Iyer said. Capital adequacy ratio of the bank under Basel-III was 10.68% as on December 31, 2014.

Loan growth to be around 11% this year

Bank of India chairperson and managing director VR Iyer spoke to the media after the announcement of the bank’s results for the quarter ended December 2014. Excerpts:

How do you think credit growth would pan out? Also, what is your guidance on CASA growth?
For the year, loan growth would be around 10-11% and largely be driven by international growth. We’ve been substantially consolidating over the last 12-15 months. Overall, credit growth may witness a moderate recovery in the second half of FY16, with an improvement in macro-economic condition. On the CASA side, we would aim to grow at around 12%.

What is your take on NPAs? How do see net interest margins panning out?
Our focus is towards recoveries and upgrading accounts. Gross NPAs are at 4.07%. This quarter will also be challenging. That is why I am giving the guidance below 4%. For net NPAs, we’re giving a guidance of around 2.5%. But, I believe, we would be able to improve it. Domestic NIM should be around 2.65%. Internationally, we expect it to touch 1.35%.

Do you see a rise in demand for project loans?
As of now, we don’t see any pick-up in growth; it may not happen in the next two quarters. In India, the sentiment is good, but the ease of doing business still needs to improve. It may be another six-nine months before we see a significant pick-up in credit. If the government comes out with some infrastructure openings, that too would take between three and six months.

Could you elaborate on your stance on payments banks?
We may be investing around 19.9% going forward. Our board has given the consent. Our partner has already made an application. I think it should take around nine to ten months for the approval to come. We don’t know how many approvals will be given by the RBI but presumably what is being talked about is around ten. So let us wait.

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