Banking On Success

One negative factor for OBC is that the stock market will soon be flush with bank stocks. In the past, there were only two big bank stocks; SBI and OBC and they could attract enough attention from marketmen. But with Dena Bank, Bank of Baroda and Bank of India being listed in a few months time, action could shift to these stocks. Despite this, OBC should continue to be an attractive stock.

Though OBC is much smaller in size, it remains one of the most efficient and profitable banks in the industry. Its total net profit at Rs 172.75 crore in 1995-96 compares favourably to that of Rs 204.27 crore of Bank of Baroda. Compare the fully diluted equity of BoB at Rs 296 crore against Rs 192.54 crore of OBC and the offer price of BoB at Rs 85 per share.

OBC has done quite well for the first half of 1996-97. Margins have been under pressure but the bank has managed to show good growth over the previous half year. The growth in total income was 30.22 per cent against a growth in total expenses of 33.3 per cent. OBC saw a rise in its interest expenditure by 43.83 per cent which is very high.

This indicates that OBC is paying very high interest on its deposits. Its cost of borrowing is higher because of the shift of its deposit portfolio from savings and current deposits to term deposits. The proportion of savings and current deposits of the total deposits had fallen from 34.81 per cent in 1994-95 to 30.72 per cent in 1995-96. Interest cost on deposits and borrowing had increased to 6.74 per cent in 1995-96 from 6.65 per cent in 1994-95. Incremental interest cost to incremental borrowings stood at 10.95 per cent in 1995-96. The trend seems to have continued even in the September 1996.

The capital adequacy stood at 16.99 per cent which is quite high. It has a large investment portfolio but the good thing is that its current investments are quite high at 63.75 per cent. Though the bank has not made any provisions for the first half, there will not be much to provide in terms of depreciation on securities as interest rates have fallen this year. But this may change if it increases the proportion of current investments in the next half.

Deposits grew at 30.53 per cent to Rs 8710.88 crore in 1995-96 over 1994-95. It had an advances portfolio of Rs 4671.78 crore in 1995-96. OBC is a lender to small and medium companies, small scale industries, exporters and agriculturists with a dominant presence in Punjab, Haryana and Uttar Pradesh. It also opened 83 branches in 1995-96 and the total branches increased to 701.