3 April 2012
C
orner
O
ffice
Interaction with the CEO
the
Realigning business strategy: Focus on qualitative growth
Oriental Bank of Commerce
NPA management, recoveries to be key focus area
De-bulking of balance sheet, with change in branch banking strategy to improve
operating parameters
To improve CASA ratio by capitalizing on strong foothold in CASA-rich northern states
- targets CASA ratio of 25% by CY12 as against 22% as at the end of CY11
Credit monitoring and NPA recovery to be key focus area
To increase granularity in loan portfolio by increasing focus on SME and retail portfolio
We met the new CMD of Oriental Bank of Commerce (OBC), Mr SL Bansal to gain
Mr SL Bansal
insights into the bank’s strategies and its roadmap under the new leadership.
Chairman and Managing Director
Mr SL Bansal
has assumed
Our key takeaways:
De-bulking the balance sheet - A key requirement for improving operating
parameters:
In the last few years, strong loan growth and focus on bulk business
led to a decline in OBC’s CASA ratio and impacted margins. As a strategy, Mr
Bansal intends to de-bulk the balance sheet. Accordingly, only select branches
would focus on the wholesale business while the others would focus on the
retail, SME and mid-corporate segments. In the process of realignment of its
balance sheet, the bank is willing to grow moderately.
charge as CMD of OBC in March
2012 and has tenure till
September 2014. Mr Bansal
started his career as a
Probationary Officer in Union
Bank of India, where he gained
vast experience in different
roles. In 2010, he became
Executive Director of United
Bank of India.
Improving CASA ratio - To leverage strong foothold in CASA-rich northern region:
OBC’s CASA ratio has been lower among state-owned banks at ~22% as against
the industry average of ~30%. As at December 2011, the bank had ~1,750 branches, with very strong presence in
the CASA-rich northern region. The management is planning various initiatives to improve CASA ratio and to
leverage upon its strong foothold in the CASA-rich belt. Shedding of bulk deposits would also help to improve
CASA ratio. The management targets CASA ratio of 25% by the end of CY12 as compared to 22% in December 2011.
NPA management and recoveries - A key focus area:
Recoveries from NPAs and strengthening of credit appraisal
at all levels to improve asset quality would be OBC’s key focus areas. Moreover, with the help of technology,
credit monitoring processes should advance considerably. The management is also considering providing
preemptive restructuring of assets where the borrower has been temporarily impacted by economic slowdown.
Valuation and view - Maintain Buy:
We expect near-term margins to be under pressure due to (1) tight liquidity
conditions, (2) lower CASA ratio, and (3) higher proportion of deposits at preferential rates. However, we believe
the new management’s focus to improve the balance sheet, even at the cost of growth, is a step in the right
direction. Though core operating parameters are under pressure, a strong management at the helm of affairs
and low valuations are comforting. We expect OBC to report RoA of 0.7% and RoE of ~12% over FY12/13. The stock
trades at 0.7x FY12E and 0.6x FY13E BV. Maintain
Buy.
Stock Info
CMP (INR) - 2 Apr. 2012
256
Bloomberg
OBC IN
Equity Shares (m)
291.8
52-Week Range (INR) 406/190
1,6,12 Rel.Perf.(%) -11/-20/-24
M.Cap.(INR b)/(USD b)
75/2
Financial and valuation summary
Year
Net Income
End
(INR m)
3/11A
51,376
3/12E
55,131
3/13E
63,292
3/14E
72,935
PAT
(INR m)
15,029
12,006
13,992
15,474
EPS
(INR)
51.5
41.1
48.0
53.0
EPS
Gr. (%)
13.7
-20.1
16.6
10.6
P/E
(X)
5.0
6.2
5.3
4.8
BV
(INR)
350
381
418
459
P/BV
(X)
0.7
0.7
0.6
0.6
P/ABV
(X)
0.8
0.8
0.7
0.6
RoAA
(%)
1.0
0.7
0.7
0.7
RoAE
(%)
17.1
11.3
12.0
12.1
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415
Sohail Halai
(Sohail.Halai@MotilalOswal.com) /
Umang Shah
(Umang.Shah@MotilalOswal.com)

C
orner
O
ffice
We met the new CMD of Oriental Bank of Commerce (OBC), Mr SL Bansal to gain
insights into the bank’s strategies and its roadmap under the new leadership. Mr
Bansal has tenure of at least 10 quarters till September 2014, ensuring longevity of
the new strategies.
Some of the advantages for Mr Bansal while taking over as CMD of OBC are:
1. Meaningful stint with OBC – In the early stage of his career, he headed various
branches/regions in North and Central India.
2. Throughout his career, he has been a banker involved with credit functions.
3. He brings with him the experience of successful improvement in key parameters
of United Bank of India where he worked as Executive Director.
the
De-bulking the balance sheet: A key requirement for improving operating
parameters
Over the past few years, OBC’s focus has shifted towards bulk business to rapidly
grow the balance sheet. This has taken a toll on its core operating performance.
Margins and CASA have been impacted significantly due to the rapidly growing
bulk business.
Mr Bansal wants to de-bulk the balance sheet although in the process the bank
may have to grow at a moderate pace in the near-term.
To achieve the desired results, OBC has shifted the bulk business to select branches
(dedicated for wholesale banking) which would be monitored directly from the
Head Office (HO). Meanwhile, the other branches have been directed to strengthen
focus on SME, retail and mid-corporate segments.
Expect business growth to moderate
Deposit mobilization to be led by CASA deposits
Source: Company/MOSL
Focus on de-bulking balance sheet to lead to
moderation in business growth
Shedding of bulk deposits to lead to overall
moderation in deposit growth; CASA growth
likely to improve
3 April 2012
2

C
orner
O
ffice
Margins, though improved, remain below peers (%)
the
Higher share of bulk
business in overall
business is leading to
volatility in margins.
Higher thrust on CASA
and focus on high
yielding retail and SME
segments should propel
margins upwards
Source: Company/MOSL
Improving CASA ratio: To leverage strong foothold in CASA-rich northern
region
OBC’s CASA ratio has been at the lower end among state-owned banks at ~22% as
against the industry average of ~30%. The steep decline in CASA ratio has been on
the back of rapid increase in the bank’s bulk business.
As at December 2011, the bank had ~1,750 branches, with very strong presence in
the CASA-rich northern region. The management is planning various initiatives to
improve CASA ratio and to leverage upon its strong foothold in the CASA-rich
belt. Shedding of bulk deposits would also help to improve CASA ratio.
The management targets CASA ratio of 25% by the end of CY12 as compared to
22% in December 2011.
CASA ratio continues to decline (%) …
...and remains well below peers (%)
Source: Company/MOSL
Strong loan growth coupled with moderating CASA
growth leading to decline in CASA ratio
Despite strong presence in CASA-rich region, OBC’s
CASA ratio remains well below peers
3 April 2012
3

C
orner
O
ffice
CASA growth to bounce back (% YoY)
the
Expect CASA growth to
improve in FY13, led by
traction in SA deposits
Source: Company/MOSL
NPA management and recoveries: A key focus area
Credit monitoring and recoveries from NPA accounts would also be OBC’s key
focus areas. To improve asset quality, the management is planning to strengthen
credit appraisal at all levels. Moreover, with the help of technology, credit
monitoring processes should advance considerably.
The management is also considering providing preemptive restructuring of assets
where the borrower has been temporarily impacted by economic slowdown.
The healthy momentum in recoveries continues and the trends during 4QFY12
too looks encouraging. To expedite the recovery process, the bank is: (1) holding
recovery camps across the country and offering a one-time settlement (OTS)
scheme to small borrowers (less than INR1m category) based on their repayment
capacity, and (2) implementing action under SARFAESI Act to accelerate disposal
of assets and improve recoveries.
Pressure on asset quality has increased in line with industry
Momentum in recoveries remains strong (INR b)
Source: Company/MOSL
Economic moderation and system-based NPA
recognition has led to higher slippages over the past
few quarters
While momentum in recoveries remains strong,
further steps initiated by the management could lead
to positive surprise
3 April 2012
4

C
orner
O
ffice
Net slippages are trending downwards (INR b)
Restructured loans have increased in line with industry trends
the
Source: Company/MOSL
Despite higher gross slippages, net slippages have
been lower due to increasing upgradations and
recoveries
Restructured loans have been slightly higher than
industry on account of certain large accounts getting
restructured
Focusing on SME / Retail portfolio: Capitalizing on key strength
To reduce dependence on the wholesale business and to increase the share of
high yielding assets in the overall mix, the management intends to focus on the
SME and Retail portfolio.
After shifting the wholesale business to select branches, the management has
asked branches to focus on the SME/Retail business. The field officers have been
directed to exercise discretionary powers to make eligible good credit prospects
in line with the bank’s systems and processes.
In terms of the retail banking strategy, the branches have been advised to prepare
retail credit budgets for the year and focus specifically on housing loans, vehicle
loans and education loans to grow and de-risk the balance sheet.
Retail loan growth lags overall loan growth
Proportion of retail loans in overall loans declines (%)
Source: Company/MOSL
Retail loan growth to improve with increased focus on
housing, vehicle and educational loans
Share of SME and retail segments to improve, led by
the management’s increased focus on these segments
3 April 2012
5

C
orner
O
ffice
Valuation and view: Maintain Buy
We expect near-term margins to be under pressure due to (1) tight liquidity
conditions, (2) lower CASA ratio, and (3) higher proportion of deposits at
preferential rates. However, we believe the new management’s focus to improve
the balance sheet, even at the cost of growth, is a step in the right direction.
For improving core operating parameters, balance sheet consolidation is
imperative, in our view. Outstanding standard restructured loan book stands at
INR608b (5.6% of loans), and further restructuring expected in 1HCY12 remains a
concern. Immediately after assuming office, the new CMD has taken NPA
management and recoveries as focus areas, which should reduce stress.
Though core operating parameters are under pressure, a strong management at
the helm of affairs and low valuations are comforting.
We expect the bank to report an EPS of INR41 for FY12 and INR48 for FY13, and BV
of INR382 for FY12 and INR418 for FY13. It is likely to report RoA of 0.7% and RoE of
~12% over FY12/13. On the back of higher proportion of wholesale business, OBC
has one of the lowest cost-to-income ratios in the industry, which remains its key
strength. The stock trades at 0.7x FY12E and 0.6x FY13E BV. Maintain
Buy.
the
OBC: One-year forward P/BV
OBC: One-year forward P/E
Source: Company/MOSL
3 April 2012
6

C
orner
O
ffice
Financials and Valuation
Income Statement
Y/E March
2009
Interest Income
88,565
Interest Expense
68,600
Net Interest Income
19,965
Change (%)
19.5
Non Interest Income
10,713
Net Income
30,678
Change (%)
33.5
Operating Expenses
13,828
Pre Provision Profits
16,850
Change (%)
38.2
Provisions (excl tax)
5,255
PBT
11,595
Tax
2,540
Tax Rate (%)
21.9
PAT
9,054
Change (%)
7.7
Equity Dividend (Incl tax)
2,140
Core PPP*
12,036
Change (%)
13.0
*Core PPP is (NII+Fee income-Opex)
2010
102,571
73,497
29,074
45.6
12,000
41,075
33.9
16,860
24,215
43.7
8,176
16,039
4,692
29.3
11,347
25.3
2,667
19,980
66.0
2011
120,878
79,103
41,775
43.7
9,601
51,376
25.1
18,925
32,451
34.0
12,065
20,386
5,357
26.3
15,029
32.4
3,527
31,698
58.7
2012E
160,085
117,365
42,720
2.3
12,411
55,131
7.3
22,582
32,548
0.3
15,639
16,909
4,904
29.0
12,006
-20.1
2,809
30,798
-2.8
2013E
180,063
130,864
49,200
15.2
14,092
63,292
14.8
26,150
37,141
14.1
16,412
20,730
6,737
32.5
13,992
16.6
3,274
34,891
13.3
the
(INR Million)
2014E
203,267
146,129
57,137
16.1
15,798
72,935
15.2
29,933
43,002
15.8
20,078
22,924
7,450
32.5
15,474
10.6
3,621
40,652
16.5
Balance Sheet
Y/E March
Equity Share Capital
Reserves & Surplus
Net Worth
Deposits
Change (%)
of which CASA Dep
Change (%)
Borrowings
Other Liabilities & Prov.
Total Liabilities
Current Assets
Investments
Change (%)
Loans
Change (%)
Fixed Assets
Other Assets
Total Assets
(INR Million)
2009
2010
2011
2012E
2013E
2,505
2,505
2,918
2,918
2,918
71,529
79,874
108,054
116,940
127,348
74,034
82,379
110,971
119,858
130,266
983,688 1,202,576 1,390,543 1,633,888 1,878,971
26.3
22.3
15.6
17.5
15.0
233,562
300,229
341,480
364,132
414,406
7.5
28.5
13.7
6.6
13.8
27,220
48,870
56,392
88,381
100,413
40,883
40,484
55,528
62,645
72,562
1,125,826 1,374,310 1,613,434 1,904,771 2,182,211
122,251
145,999
190,887
222,527
249,542
284,890
357,853
420,748
483,860
556,439
18.9
25.6
17.6
15.0
15.0
685,004
834,893
959,082 1,141,308 1,312,504
25.5
21.9
14.9
19.0
15.0
13,839
13,940
13,978
13,969
14,152
19,843
21,624
28,739
43,108
49,574
1,125,826 1,374,310 1,613,434 1,904,771 2,182,211
2014E
2,918
138,891
141,808
2,217,185
18.0
471,786
13.8
111,386
84,163
2,554,542
277,895
656,598
18.0
1,548,755
18.0
14,284
57,010
2,554,542
Asset Quality
GNPA (INR m)
NNPA (INR m)
GNPA Ratio
NNPA Ratio
PCR (Excl Tech. write off)
PCR (Incl Tech. Write off)
E: MOSL Estimates
3 April 2012
10,581
4,424
1.53
0.65
56.2
0.0
14,688
7,238
1.74
0.87
49.6
76.7
19,205
9,382
1.98
0.98
50.7
76.8
33,829
22,242
2.93
1.95
34.3
59.3
40,089
23,959
3.02
1.83
40.2
62.5
(%)
45,357
22,421
2.89
1.45
50.6
67.6
7

C
orner
O
ffice
Financials and Valuation
Ratios
Y/E March
Spreads Analysis (%)
Avg. Yield-Earning Assets
Avg. Yield on loans
Avg. Yield on Investments
Avg. Cost-Int. Bear. Liab.
Avg. Cost of Deposits
Interest Spread
Net Interest Margin
Profitability Ratios (%)
RoE
RoA
Int. Expense/Int.Income
Fee Income/Net Income
Non Int. Inc./Net Income
Efficiency Ratios (%)
Cost/Income*
Empl. Cost/Op. Exps.
Busi. per Empl. (INR m)
NP per Empl. (INR lac)
* ex treasury
Asset-Liability Profile (%)
Loans/Deposit Ratio
CASA Ratio
Investment/Deposit Ratio
G-Sec/Investment Ratio
Valuation
Book Value (INR)
Price-BV (x)
Adjusted BV (INR)
Price-ABV (x)
EPS (INR)
Change (%)
Price-Earnings (x)
Dividend Per Share (INR)
Dividend Yield (%)
E: MOSL Estimates
2009
9.6
10.6
8.2
7.5
7.4
2.1
2.2
2010
9.0
10.0
7.7
6.5
6.4
2.5
2.5
2011
8.8
10.0
7.1
5.9
5.8
3.0
3.1
2012E
10.1
11.6
7.4
7.4
7.5
2.7
2.7
2013E
9.8
11.1
7.3
7.1
7.2
2.7
2.7
2014E
9.5
10.6
7.3
6.8
6.9
2.7
2.7
the
14.8
0.9
77.5
19.2
34.9
16.5
0.9
71.7
18.9
29.2
17.1
1.0
65.4
17.2
18.7
11.3
0.7
73.3
19.3
22.5
12.0
0.7
72.7
18.7
22.3
12.1
0.7
71.9
18.4
21.7
53.5
54.7
102.1
0.6
45.8
57.6
120.7
0.7
37.4
55.4
132.0
0.9
42.3
55.7
145.3
0.7
42.8
54.7
159.9
0.8
42.4
53.0
176.8
0.8
69.6
23.7
29.0
88.0
69.4
25.0
29.8
91.9
69.0
24.6
30.3
87.2
69.9
22.3
29.6
87.8
69.9
22.1
29.6
84.4
69.9
21.3
29.6
84.4
257.5
1.0
246.1
1.0
36.1
7.7
7.1
7.3
2.9
292.2
0.9
273.4
0.9
45.3
25.3
5.7
9.1
3.6
350.0
0.7
329.1
0.8
51.5
13.7
5.0
10.4
4.1
381.5
0.7
331.9
0.8
41.1
-20.1
6.2
8.2
3.2
418.2
0.6
364.8
0.7
48.0
16.6
5.3
9.6
3.7
458.9
0.6
408.9
0.6
53.0
10.6
4.8
10.6
4.1
3 April 2012
8

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