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Allahabad Bank reported a 25% growth in PAT for 2QFY2016, aided by higher
net interest income and lower provisions along with stable asset quality.
NIM improves qoq; Slippages remain elevated
During 2QFY2016, the bank witnessed a modest growth of 6.3% yoy in its loan
book, while deposits growth was sluggish at 1.5% yoy. CASA deposits grew by
8.5% yoy (4.6% qoq), aiding 223bp yoy and 69bp qoq increase in bank’s CASA
ratio to 34.9%. Yield on funds for the bank declined 18bp qoq to 9.5% while a
25bp qoq decline in the costs of funds on improved CASA ratio led to a 4bp qoq
rise in Reported NIMs to 2.95%. The non-interest income (excluding treasury) for
the bank saw a decline of 11.2% yoy led by decline in other income which
however was partially offset by growth of 17.3% yoy in the fee income.
During the quarter, asset quality pressures for the bank continued, as annualized
slippages rate got elevated to 4.4%, higher than 1.9% in 1QFY2016 and 3.8% in
2QFY2015. Gross NPA ratios declined marginally by 0.6% qoq, while net NPA
declined 1.6% qoq. The PCR for the bank continued to rise (up 117bp qoq during
the quarter to 55.5%). Additionally, the bank restructured advances worth Rs111cr,
thereby taking its outstanding restructured book to Rs15,769cr (10.4% of gross
credit).
Outlook and valuation: At the current market price, the stock trades at 0.3x
FY2017E P/ABV. However, given the stress in certain sectors of the economy and
with the bank having a meaningful exposure to these stressed sectors, we would
follow a cautious stance in the near-term. We recommend a Neutral rating on the
stock.

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