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A Regular Success

Improving performances have made this banking PSU a standout offer

Profile
Like all PSU banks the stress at Bank of India (BOI) also has been towards the retail sector and as a result the share of bulk deposits or corporate deposits is just 20 per cent, while rest is all retail deposits. International business of the bank contributes 17 per cent of the total business.

Current Account and Savings Account (CASA) ratio as of March 31, 2009 stood at 31 per cent, down from 40 per cent 2 years ago, which implies that the higher interest offered during the credit crisis has worked for the bank, and most of the new funds have gone into term deposits.

Currently, the bank is looking for partners for its venture into the asset management business.

Fundamental Performance
The bank has, over the years, done well to cut down on high non-performing assets (NPAs) of yesteryears. Its current net NPAs stand at 0.44 per cent of the total assets while its capital adequacy ratio stands at 13.01 per cent, up from 11.75 per cent 2 years ago. On the profitability front, it has also improved upon its wayward ways —for the past three years, the bank has been able to boost its bottom-line by 62.45 per cent annually.

Though its dividend payout ratio is not something to brag about, still BOI has been a regular dividend paying company for the past 10 years.

Stock Performance
The believer of this bank’s stock has been rewarded handsomely over the past 5 years. The stock has compounded the investors money at more than 50 per cent per year.

Currently, the stock is trading at a dividend yield of 2.03 per cent, well above its 5-year median yield of 1.71. BOI is about 1/4th the size of the PSU banking giant State Bank of India (SBI), but valuation-wise the stock is trading at a 50 per cent discount to SBI. Its price to earning (PE) ratio is 6.84 while that of SBI is 13. But comparing this with the stock’s own historic level, it is currently trading at 21 per cent below its 5-year median PE.

History
Bank of India was set up in 1906 in Mumbai. Starting off with a single branch, it now has over 3,000 branches all across India. It was nationalised in 1969.

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Alse see: Bank of India

This article was previously published in October 2009 issue of  Wealth Insight