Bank of Maharashtra impressive growth - yet

Impressive turnaround of Bank of Maharashtra

Bank of Maharashtra (bank) was one of the few banks that were left out of the exercise of merger of public sector banks (PSBs) in 2019. (Ten PSBs were merged into four). The bank incurred a net loss of Rs.4784 cr. in the financial year ended 2019. The bank took the decision of the central government as a ‘blessing in disguise’ and started its turnaround. From the huge net loss reported in FY 2018-19, the bank reported a modest net profit of Rs.389 cr. in FY 2019-20. Since then, as shown in the following table, the bank had grown from strength to strength in the last 42 months, marked by 72% growth in business levels and improving by six times its net profit that was reported in March 2020. 

                                                                                                                               (Rs. in cr.)

Description	March 2020	March 2023	Sep 2023 (Half Year)	CAGR (%)
Business:
Total Deposits	150066	234083	239298	17
CASA share	50.29	53.38	50.71	NA
Gross Advances	94889	175120	183122	27
Retail Advances	22810	43433	46449	30
Unrated government guaranteed advances	832	15557	19126	NA
Total Business	244955	409203	422420	21
CD Ratio	63.23	74.81	76.52	NA
Investments	58171	69215	70490	6
Operating Results
Total Income	13145	18179	11153	20
Interest on Advances	6409	11486	7537	39
Non-Interest Income	1649	2280	1296	16
Operating Profit	2847	6099	3784	47
Provision for NPAs	2953	2253	1137	-7
Net Profit	389	2602	1802	237
Ratios
GNPA	12.81	2.47	2.19	NA
NNPA	4.77	0.25	0.23	NA
Cost of Deposits	4.81	3.95	4.29	NA
Yield on Advances	7.23	8.49	8.93	NA
NIM	2.6	3.8	3.9	NA
Tier I	10.67	14.25	13.72	NA
CRAR	13.52	18.14	17.61	NA

From the above table, it is more than clear that the spectacular performance under operating profit (CAGR of 47%) and net profit (CAGR of 237%) of the bank were made possible chiefly due to (i) the stupendous increase in gross advances (CAGR of 27%) , which ably aided the increase in interest income on advances (CAGR of 39%) and (ii) the decline in provision requirements for NPAs (-7%).

Since the entire turnaround appears to have revolved around the growth in advances, increased NIM and the lesser need to make huge provision on stress assets, it is important for the bank, its board, management and the staff to ensure that these parameters are sustained at the existing levels to continue the momentum. In this regard, it is worthwhile to remember the remarks of RBI Governor “During tranquil and good times that vulnerabilities may creep in. Hence, buffers are best built up during these periods. A stable financial system is a prerequisite for price stability and sustained growth. This is a shared responsibility in which regulated entities like banks, NBFCs and others are important stakeholders". (As a part of his speech, while reading out the statement on the outcome of MPC in August 2023)

I would expect the Bank to concentrate on/monitor the following areas: 

a. The share of CASA to total deposits, which was at 57% in March 2022, since then dropped down considerably and is lower at 50.7% in Sep 23. ICRA had mentioned in their rating rationale that much of the deposit accretion came from Certificates of Deposits and deposits from state government departments, which are classified as high cost bulk deposits. This may put pressure on the NIM of the bank, which shot up from 2.6% in March 2020 to 3.89% in Sep 23.

b. Loans to unrated state government entities had gone up from Rs.832 cr. in March 2020 to Rs.19126 cr. now. (Accounting for a little over 20% of the total growth in gross advances). Not long ago, all the banks had to restructure their lending to state electricity boards with huge haircuts. Bank may look at its exposure to govt entities with weak credit profiles, though government guarantee is available.

c. In the notes to accounts to the financial results in Mar 23, June 23 and Sep 23 quarters, the bank stated that it acquired loans through assignment from other FIs in the range of Rs.2400-Rs.3000 cr. in each quarter. No significant tangible security is seen in respect of these advances.

d. Retail advances had shown a CAGR of 30% in the last three and a half years with loans other than housing, vehicles and education accounting for one third of such growth.

e. Restructured standard assets portfolio at Rs.4188 cr. as on Mar 23 is mentioned as a key monitorable by ICRA in its rating rationale.

f. An ideal CD ratio for a commercial bank, especially for a PSB is 72-75%. The bank is above the ideal ratio.

g. Investments, which grew by nearly Rs.10000 cr. in 2020-21, remains constant thereafter. In this connection, JP Morgan has recently announced its decision to include the eligible India Government Bonds into its widely tracked GBI - EM index, effective June 24. Economic and financial experts in the market are predicting that the yield of the bench mark 10- year G-sec may trade in the range of 6.75-7% by March 2024. So, investing in eligible dated g-sec. may be a good opportunity that is kicking in. Bank may revisit its strategy in respect of investing in govt. securities.

My hearty congratulations to the MD & CEO, the bank's board, top management and the entire staff of Bank of Maharashtra for the continued excellent performance in the last three and a half years.

Regards

V.Viswanathan

18th October 2023