Corporation Bank
Aaron Chaze
January 2: While most bank stocks are having trouble finding suitors who might be looking for bargain buys, a handful of public sector banks seem to have found favour with investors. Leading the pack is Bank of Baroda, whose shares have been a favourite for some time now owing to its attractive pricing at the time of its initial public offering (IPO) in 1997 at Rs 80 per share and also due to the relative strength of its balance sheet. Bank of India, though fundamentally not in the same league as BoB, also seems to be attracting investments; the logic being that the stock has seen so much selling since it was listed that it looks less risky at the current price. But the bulk of bullish opinion has been reserved for Corporation Bank. Like Bank of Baroda, the other banking favourite, Corporation Bank's IPO was also priced rather cheap both in relation to its financial strength and to the fact that it has one of the best balance sheets and earnings numbers (the low pricing of the IPO was understandable
since the average earnings multiple for bank stocks was and still is between three and five times). Post listing the BoB stock gained 50 per cent and Corporation Bank's shares seem to be headed the same way. In the few weeks since listing the stock has climbed 19 per cent to Rs 100. With the exception of the new private sector banks its performance figures appear striking. Corporation Bank's net non-performing assets (net NPAs are basically NPAs after provisioning) are just 3.6 per cent, which is unusual for domestic banks. At 1.66 per cent, the return on average assets for Corporation Bank is close to twice the figure for banking giant State Bank of India (0.88 per cent) and recent market favourite, Bank of Baroda (0.77 per cent). While its assets have grown at a modest rate with a size of just Rs 8,000 crore, its overall profit growth and growth in profit per share have been quite phenomenal. Over a four-year period its profits before provisioning and taxes grew at a compound rate of 28 per cent
year-on-year. After provisioning its pre-tax earnings have grown at a compound rate of over 50 per cent year-on-year, thus showing the reducing impact of provisioning on the bank's earnings over the last couple of years. The numbers that make up Corporation Bank's earnings statement and balance sheet reflect only partly on the facts. Within the banking industry it is known that the Corporation Bank management has been amongst the more prudent and forward thinking of all the public sector banks. And according to industry sources, save for the compensation packages and some lending habits, the bank's approach to its business is similar to that of the private sector banks. As an example, the management decided to follow prudent accounting norms from mid-eighties, at a time when most banks did not even comprehend the eventual need for the same. The eventual result of prudent banking is there for all to see.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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