Oriental Bank of Commerce (OBC) Q3FY13 Result Review

Oriental Bank of Commerce (OBC) today reported its Dec 2012 quarter numbers. The numbers of the bank were not encouraging; however it was the management guidance which helped the stock to surge in today’s trading session. The stocks closed higher by 5% to Rs 330.5 per share. The following are some of the banks key financial parameters: 

Net Interest Margin (NIM) of the bank improved by 4 basis points to 2.84% on a sequential basis which is commendable. The management now expects the NIM to remain stable in the fourth quarter, and has given the guidance of maintaining NIM at 2.85% for FY13. As on Dec 31, 2012, Capital Adequacy Ratio (CAR) of the bank stood at 12.25% with Tier 1 CAR at 9.14% which should be considered as a decent level.  

The bank witnessed a mixed response in terms of asset quality as its gross NPA improved while its net NPA worsened. Gross NPA for the bank decreased by 6 basis points to 2.98% while net NPA increased by 10 basis points to 2.14% on a sequential basis. For March FY13, the management expects Gross and Net NPA to improve and stand at 2.95% and 2% respectively. As on Dec 31, 2012, Provision Coverage Ratio (PCR) stands at 63.55% which is below the RBI guidelines of 70%. 

OBC witnessed subdued business growth which increased by 9.45% to Rs 292118 crore. As on Dec 31, 2012, deposits of the bank grew by 8% to Rs 168492 crore (against the RBI estimate of 15% for FY13) and advances grew by 12% to Rs 123626 crore (RBI estimate of 16% for FY13). 

On the segmental front, revenue from the retail segment grew by 24% to Rs 2023 crore while it remained muted when it came to treasury and wholesale banking segment. 

OBC has posted a de-growth on the profit front on all the three segments - Treasury, Retail and Wholesale banking - reporting a decline in profit by 58%, 39% and 52% respectively.

Overall, we believe that it was management guidance on the asset quality and on the NIM front which helped the stocks to move northwards. Adding to the same, rate cut hopes (from RBI’s meet next week) on the streets also helped the stock to move higher in today’s trade. On the valuation front, the bank is available at a Price to Book Value of 0.82x which we believe is fairly valued. The bank still has to make a lot of efforts on the business and profit growth front going ahead and therefore, we would advise our readers to take a wait-and-watch approach on the counter.