BoI: Headroom to grow

QIP will help the bank in meeting Basel II norms and fund its business growth

Bank of India (BoI) will raise between Rs 1300 and 1400 crore through the qualified institutional placement (QIP) route, which will shore up its capital adequacy ratio to over 13 per cent from 12.5 per cent in September 2007.

The bank is raising the capital to meet Basel II norms, expand credit and enter new businesses such as its recent life insurance JV. Its tier-I capital will be over 8 per cent against 7.08 per cent in Q2.

The government's holding of 69.47 per cent in BoI is expected to come down to 64.47 per cent after the issue. The bank has indicated that there will not be any further equity dilution for two years as this placement will provide headroom to raise perpetual debt instruments (categorised under tier-I capital) and tier-II capital if required.

The bank has been growing aggressively for the past few years, with consolidated deposits and advances growing by 19 per cent and 23 per cent respectively between FY04 and FY07.

Even in H1 FY08, deposits and advances were up by a robust 25.5 per cent and 27.6 per cent respectively. However, BoI has not compromised on quality, posting stable to improving net interest margins (NIMs) and declining non-performing assets.

The bank's net interest income grew by 16 per cent to Rs 986 crore and NIMs were down by a mere 5 basis points at 3.04 per cent, in Q2 FY08. Going forward, the bank has indicated a growth of 26-27 per cent in both credit and deposits.

The market has recognised BoI's performance, going by the rise in its stock price in 2007. The shares of BoI gained 76 per cent in the last one year compared with 45 per cent in the Sensex and 61 per cent in the Bankex.

At Rs 373, the stock trades at 1.8-1.9 times estimated adjusted book value (after the QIP) for FY09, which makes it fairly valued.

IPOs in 2007

Initial public offerings were in demand during 2007. Companies such as DLF, Power Grid and Mundra Port tapped the primary market. The investor appetite was huge, with several issues being oversubscribed by more than 50 times.

The FIIs lapped up the new issues. So it came as no surprise that the collections in 2007 doubled to about Rs 40,000 crore over the previous year.

The big listing of the year was real estate player DLF, which garnered over Rs 9,000 crore. Cairn India, which opened for subscription in late 2006, was listed in January 2007. And the returns were excellent.

An equal amount invested in all the IPOs would have fetched returns amounting to 100 per cent. The real estate, construction, engineering, entertainment, technology and financial services sectors hogged the limelight.

The investors made losses in only 23 issues, whereas 80 scrips are trading at a premium to the issue price. The top performers among the new listings were construction company Orbit (up 750 per cent from issue price), education software player Everonn (690 per cent) and electronic equipment maker MIC Electronics (570 per cent). On the other hand, the share prices of Broadcast Initiatives and Pearl Fashion have nearly halved from their issue price.

Almost all the large issues of the year have appreciated considerably. DLF, Power Grid, Mundra Port, HDIL, Power Finance and Indian Bank doubled in a year's time.

The IPO pipeline is only expected to grow in 2008, with a slew of issues such as Reliance Power, Emaar MGF and PSUs such as Oil India and Rural Electrification Corporation, lined up.