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Business News/ Opinion / Online-views/  Allahabad Bank: asset quality, NIMs likely to boost stock
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Allahabad Bank: asset quality, NIMs likely to boost stock

Allahabad Bank: asset quality, NIMs likely to boost stock

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Two things stand out in Allahabad Bank’s September quarter earnings. First, it managed to restrain bad loans despite, like other public sector banks, migrating to a new system of recognizing non-performing assets (NPAs). It was all the more admirable since the lender had to switch over more loans to the new system compared with its mid-sized rivals.

While that is a positive, there is a red flag. The bank has lent 13,612 crore, or about 14% of its overall advances, to the power sector. That is higher than peers; however, the management indicates there is no stress on this portion of the loan book.

Secondly, the bank has delivered better-than-expected net interest margins (NIMs) at 3.68%, a sequential rise of 28 basis points. That is all the more surprising since the lender failed to grow its low-cost current and savings account (Casa) deposits significantly. Casa deposits fell to 30.6% of overall deposits compared with 32% in the June quarter.

Also See | Quarterly performance (PDF)

What bailed out Allahabad Bank was an increase in yield on advances. This metric grew almost 1 percentage point over the June quarter as the lender pruned short-term loans and repriced others.

However, the cutback in short-term advances also showed on the loan book. After growing at 30%-plus rates over the past three quarters, loan growth slowed to 17% from a year ago. Still, the lender is saying its loan growth should be 3-4 percentage points more than the sector’s growth this year.

Due to these two factors, the 36% growth in net interest income and the 21.2% growth in net profit look more impressive. Note that Allahabad Bank trades at a 0.9 times its estimated book value for fiscal 2012.

After months of lagging the Bankex on BSE, there is ample scope for the stock to rise.

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Published: 03 Nov 2011, 11:04 PM IST
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