The PCA action will also mean that the bank will have to postpone its plans of raising Rs 3,000 crore through a qualified institutional placement, announced last month. BOI though is expecting capital infusion from the government through recapitalisation bonds, which should strengthen its balance sheet.
Nevertheless, asset quality is a key area, which the RBI flagged under the PCA. Though the net NPA ratio has come down from FY17 levels of 6.90 per cent to 6.47 per cent in Q2 it is still higher than the PCA threshold level of 6 per cent. Also, though BOI’s slippages fell 47 per cent on a sequential basis in Q2, analysts at Deutsche Bank say despite the improvement, gross NPA ratio at 12.6 per cent still remains one of the highest among peers and is a concern. What is compounding matters is the extremely weak revenue drivers with net interest margins at two per cent, negligible loan growth and weak cost structure. Clearly, BOI will have to step up its effort on all these fronts.
While BOI’s price-to-book stock valuation at under one time for FY19 is not demanding, the quantum of capital infusion, improvement in asset quality and margins are crucial factors the street will keep an eye out for.