Equity Analysis

• The bank has posted increased operating profit of Rs 4276 crore in Q1FY2019, driven by healthy growth in fee income. The bank expects to record operating profit of Rs 18000-20000 crore in FY2020. The bank also expects to post net profit of Rs 4500-5500 crore in FY2020, after making required provisions.
• The margins of the bank eased to 2.73% in Q1FY2020 due to decline in international margins and decline in domestic investment yields. The bank has been steadily reducing the dependence on high cost bulk deposits mainly in Vijaya Bank, which is expected to support margin improvement. The bank has also reduced the saving deposit and term deposits rates, which will further boost margins.
• The GNPA ratio of the bank stood at 10.28% for the merged entity, while NNPA was substantially lower at 3.95%. The bank has continued to maintain high provision coverage ratio (PCR) at 77.3% end June 2019.
• The bank aims to reduce NNPA ratio below 3% and improve provisions coverage ratio to 80-85% by end March 2020.
• The bank has targeted loan growth of 15% and deposits growth of 10% for FY2020.
• Bank is working on realizing revenue, branch, cost and people synergies. Business strategy of eDB and eVB is now aligned with amalgamated bank which should result in higher growth in coming quarters.
• The fresh slippages of loans stood at Rs 5583 crore for the merged entity in Q1FY2020. Segment wise slippages of Rs 1218 crore came from agriculture, Rs 870 crore from retail, Rs 1593 crore from corporate book and Rs 407 crore from international book. As per the bank, the large account that slipped to NPA category relating to IL&FS road project had exposure of Rs 437 crore.
• The stressed account watchlist of the bank stands at Rs 16500 crore for the merged entity, while the non-funds based exposure to these accounts stands at Rs 2300 crore.
• The SMA 2 category loan book of the bank stood at 1.48% end June 2019 compared with 1.39% end March 2019.
• Within the stressed account watchlist, the bank has exposure of Rs 1959 crore to DHFL, Rs 1732 crore to ADAG, Rs 853 crore to Sintex etc.
• The standard exposure to IL&FS stands at Rs 2800 crore end June 2019.
• The bank has conducted portfolio buyouts of Rs 2900 crore in Q1FY2020.
• The write down of capital on merger of Vijaya and Dena exceeded the capital given by the government, which impacted the capital adequacy ratio of the bank. The bank is planning capital raising of Rs 4500-6000 crore.
• The bank is comfortable with capital position on transition to Ind AS from 1 April 2020.

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