Indian Bank Reports Subdued Numbers For March 2013 Quarter

For the period, the Net Interest Income (NII) of the bank grew by a mere 2.3%. This muted growth was due to the lower Net Interest Margin (NIM), which was down by 28 bps on a yearly basis to 2.88%. Higher deposit costs (increased by 28 bps YoY) and lower yield on advances (lowered by 29 bps YoY) has led to a lower NIM.

Like most of its public sector peers, Indian Bank saw its asset quality deteriorating. The Gross NPAs of the bank went up by 15 bps on a sequential basis to 3.33%, whereas its Net NPAs increased by 9 bps in the same period to 2.26%.

The net profit of the bank dropped by 15.41% on a yearly basis to Rs 292.12 crore in Q4FY13. The operating profit also dropped by 29% in the same period to Rs 564.57 crore. One of the reasons for this fall is the 69% growth in its operating expenses on a yearly basis. The net and operating profits were impacted by the additional provisions made towards Pension Fund at Rs 704 crore, Gratuity Fund at Rs 146 crore and for the ensuing Wage Revision at Rs 38 crore.

The board of the bank has recommended a dividend of Rs 6.60 per share, which makes for a dividend yield of 4.11% at the current market price of the bank's stock.

Currently, the bank's share is trading at a price-to-book value of 0.66x, which fairly discounts its performance. Hence, we remain neutral on the stock.