Stock Insight: Bankable Asset | Value Research Bank of India's aggressive approach to ovearseas operations coupled with entry into life insurance will drive volumes
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Stock Insight: Bankable Asset

Bank of India's aggressive approach to ovearseas operations coupled with entry into life insurance will drive volumes

The century-old Bank of India was the first Indian bank to open a branch outside India. The bank currently has 23 overseas offices and is in the process of converting some of these offices into full-fledged branches. For example its representative office in Shenzan, China is being converted into a branch. The bank is also exploring Antwerp (Belgium) and Beijing to open its branches. The bank's international business grew by 25 per cent in FY'06 against domestic business' 12 per cent. The bank's aggressive approach to international business is expected to drive volumes for it.

The bank brought efficiency through the business process re-engineering (BPR). Till recently the bank had large exposure to agriculture and corporate loans. This has reduced significantly with retail accounting for 28 per cent of the total non-food credit, providing one of the best yields to the bank. The bank has identified retail and SMEs as areas, which will fuel its future growth. To meet this objective, the bank has devised a sales model to enable it to take faster decisions. In FY'06, retail credit grew 36.71 per cent and SME credit by 14.31 per cent compared with previous year.

The share of low-cost deposits also went up from 40.06 per cent to 40.64 per cent, which augurs well for the bank having a total business of Rs 1,60,594 crore. Though the bank had pruned deposit costs to 4.05 per cent in financial year 2005-06 from 4.17 per cent in FY'05, they again went up to 4.32 per cent in first quarter of FY'07 compared to 4.03 per cent in the corresponding period last year. Yield on advances jumped to 8.15 per cent in the first quarter of 2006-07 as against 7.39 per cent during corresponding period last year.

The bank has also embarked on its mission to meet the Basel II norms. On this front, the bank expects to raise its capital adequacy ratio to 11 per cent. The bank's conscious effort on improving asset quality is yielding results with net NPAs declining from 2.80 per cent in financial year 2004-05 to 1.49 per cent in FY'06, a significant achievement for a PSU bank. The bank is also planning to form a joint venture with Japan's second largest life insurer, Dai-Ichi Mutual Life Insurance Co, in an attempt to tap a business growing at 20 per cent every year. The bank's board has approved a proposal to a tie up with the Japanese company and another Indian partner. With this deal, Bank of India will become the second nationalised bank to enter life insurance business after SBI. The joint venture company is expected to be operational in around 6-12 months. An Indian partner is being roped in since a foreign partner cannot hold more than 26 per cent stake.

Bank of India will hold a majority stake in the new company. The bank's entry into life insurance will open a new stream of revenues, having the potential of contributing to its bottomline significantly.

The bank, despite incurring high operating costs due to ad-hoc provisioning in pension (Rs 16.25 crore) and implementation of core banking solutions (Rs 60 crore), showed a significant jump in net profit. The net profit of the bank went up by 22 per cent to Rs 208 crore in the first quarter of the current financial year, indicating that the bank manages its costs well.

Source: Idirect




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