Aug 17: The practice of announcing provisional results can often mislead investors, as has been the case with Bank of India. The bank, in its enthusiasm to project a rosy picture of its performance, had announced a provisional net profit of Rs 448 crore and a substantial reduction in net non-performing assets for 1996-97 ahead of the listing of its shares on the stock markets.

At that time, the bank had claimed that its net profit had grown by 58 per cent over its previous year's profit of Rs 276 crore. However, the audited results tell a different story. Net profit turned out to be Rs 360 crore, Rs 88 crore lower than what was announced in the provisional results. The provisional results were announced on April 30, while the shares were listed on May 5, leading to a virtual scramble for the scrip as investors had perceived that the offer price of Rs 45 was very low.

The wide variation between the provisional and the audited results was not confined to net profit alone. The bank had claimed in its provisional results that the net NPA had been brought down to five per cent at the end of March 1997 from seven per cent at the end of March 1996. But the audited results revealed that the bank had managed to bring down its net NPA marginally to 6.9 per cent, as shown in its annual report for 1996-97.

Senior officials of Bank of India justify the wide difference between the two figures. They point out that a much higher provision for depreciation in the value of investments by nearly Rs 97 crore has resulted in a lower net profit of Rs 360 crore for the year. The higher provision followed the bank's decision to mark to market 71 per cent, instead of the 50 per cent required as per the Reserve Bank of India (RBI) guidelines. Besides, the bank has fully written off Rs 32.75 crore towards the public issue expenses.

The bank's provision against NPAs was only Rs 4.46 crore as against Rs 42.43 crore in the previous year. However, a much higher provision for taxation of Rs 115 crore against Rs 4.18 crore had an impact on the net profit. The total provisions and contingencies amounted to Rs 219 crore compared to Rs 197 crore.

While there are reasons for the variation in the net profit, it is not known how the bank's net NPA level came down only marginally contrary to its claim in the provisional results that it has been brought down to 5 per cent.

Growth in net profit along with a substantial reduction in the net performing assets (NPA) are taken as indicators of a promising future of a bank by investors. The announcement of provisional results of the bank ahead of the listing of its shares lead to a virtual scramble for the shares.

The Bank of India stock, which was listed at Rs 50.25, saw hectic trading recording a volume of 21.44 lakh and closing at a much higher level of Rs 60.60 on the Mumbai Stock Exchange (BSE) on the same day. Within a few days of listing, the scrip shot up to a high of Rs 73.25 with a trading volume of over 14 lakh shares on May 9.

In the following sessions, the scrip started falling, reaching a low of Rs 54.75 on May 23. Thereafter, the share has seen bouts of rise and fall in prices, with its current price at Rs 59.50.

Bank of India had received overwhelming response to its Rs 675 crore issue at a premium of Rs 35 per share during February, 1997. Over four lakh investors had subscribed to the issue. The government holding in the bank is 76.53 per cent, while institutions hold 1.78 per cent, with the balance held by the public.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.