The year 2011-12 may have been tough for Oriental Bank of Commerce with dip in profit, decline in margin and rise in bad loans but the bank under its new management appears to have impressed the analysts and investors with simple ways of tackling crisis.
"We have been impressed by the conservative nature of the CMD (chairman and managing director). There is now a focus on de-bulking the balance sheet, on both the assets and liabilities sides, rather than growth in the near-term," Sunny Shah, analyst with Espirito Santo Securities, wrote in his note to clients.
The bank's new CMD SL Bansal, who took charge in March 2012, will get two and a half years' time to bring about the changes and the continuity in leadership has mollified investors' concern. The last two CMDs were given only one year each at the helm of the bank.
In 2011-12, Oriental Bank of Commerce's net profit declined by 20.6% while its net interest margin narrowed by 30 basis points. The rise in bad loans during the year alarmed investors most with the bank's share shedding 35.4% during the financial year. The scrip touched a 52-week low at Rs 190 on January 2, 2012.
However, in April-June quarter, the bank improved its asset quality, expanded its margin and guided for a better earnings performance for this financial year. "The major surprise came from the asset quality front...While restructuring may continue for a while, we expect slippages to moderate," Nilesh Parikh, analyst with Edelweiss Securities, said.
"We expect the bank to reduce its dependence on bulk deposits and instead to concentrate on extending the distribution network, which should result in increasing CASA (current account savings account) and improving net interest margin," Shah said.
While a few raised doubts over the bank's ability to deliver its promise of better earnings this year, they agreed that there was a scope to re-rate the stock following its strategy to cut bad loans and focus on margin.
"Guidance appears to be slightly optimistic, but the stock could still be re-rated. Return on equity to potentially improve from 10.7% in 2011-12 to 13.3% in 2012-13, driven by an improvement in net interest margin and a drop in credit costs," Punit Srivastava, analyst with Daiwa Capital Markets, said.
At 1:17PM, Oriental Bank of Commerce's shares were traded at Rs 235 on the National Stock Exchange, up 2.3% from Monday's close.