Bank of India slips 8% on Q3 loss, new NPA rules; analysts negative, cut target price

Bank of India share price declined 7.87 percent to Rs 133.45 on Wednesday after the double whammy effect of net loss in Q3 and revision in NPA rules.

The public sector lender has reported net loss of Rs 2,341.20 crore for the December quarter 2017, against profit of Rs 107.72 crore in year-ago.

More than double provisions in Q3 YoY, and lower net interest income, other income and operating income hit profitability.

Asset quality performance was very bad as gross non-performing assets (NPA) were sharply higher at 16.93 percent in Q3 against 12.62 percent in previous quarter while net NPAs were also higher at 10.29 percent compared to 6.47 percent QoQ.

The bank has reported divergence in gross NPAs at Rs 14,000 crore and net NPAs at Rs 9,707 crore for the year ended March 2017 while the divergence in provisioning was Rs 4,350 crore.

After taking into account this divergence in provisioning, the adjusted loss for FY17 stood at Rs 6,248 crore against earlier reported loss of Rs 1,558 crore, Bank of India said in its filing.

Meanwhile, the Reserve Bank of India (RBI) on Tuesday revised the new stressed assets framework asking banks to resolve defaults within 180 days.

Further, starting February 23, banks must immediately identify the defaults and make disclosures every Friday to the RBI credit registry.

The revised stressed asset framework would lead to accelerated and early recognition of NPAs in the banking system and would require higher provisioning expense, suggest experts.

Brokerage houses retained negative stance on the stock and slashed target price on asset quality concerns.

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Brokerage – Macquarie | Rating – Underperform | Target – Rs 87

The research house has maintained its Underperform rating on the stock with reduced target price at Rs 87 from Rs 98 earlier after the bank reported an alarming Q3FY18.

Quarterly loss is purely from ageing provisions, hard divergences and investment provisions, it said, adding the bank has receivables from other banks and not from corporates.

Macquarie expects some provision reversals against National Company Law Tribunal (NCLT) accounts ahead.

Brokerage – Deutsche Bank | Rating – Sell | Target – Rs 110

Deutsche Bank has maintained its Sell call on the stock with reduced target price at Rs 110 from Rs 120 earlier as there was no respite on asset quality and core business weakened further.

Non-performing loans rose sharply due to divergence, but some recoveries are expected in Q4, it said.

Deutsche expects revenue drivers to remain weak and return on equities at 3-5 percent over FY19. It further expects treasury contribution to fade away, net interest margin at lower than 2 percent and nil loan growth.

Source