1. 4QFY2010 Result Update I Banking
April 30, 2010
Indian Overseas Bank NEUTRAL
CMP Rs96
Performance Highlights Target Price -
Indian Overseas Bank reported poor results in 4QFY2010, with a loss of Investment Period -
Rs4.1cr at the PBT level. Weak balance sheet growth and non-interest income
Stock Info
performance, coupled with pressure on asset quality, were the key highlights
of the results. We maintain a Neutral rating on the stock. Sector Banking
Market Cap (Rs cr) 5,236
Poor Asset Quality and Operating Performance: The Gross NPAs of the bank
increased by 12.2% sequentially and 87.7% yoy to Rs3,611cr in 4QFY2010. Beta 1.0
The bank has a poor coverage ratio of 55%, including technical write-offs.
52 WK High / Low 141 / 60
The advances of the bank grew at a muted 6.6% yoy to Rs80,782cr in
4QFY2010. The NII of the bank increased by 3.3% qoq to Rs821cr in Avg. Daily Volume 324,885
4QFY2010. The reported NIMs of the bank remained flat sequentially at
2.73% in 4QFY2010. CASA deposits increased by 19.0% yoy to Rs36,050cr Face Value (Rs) 10
at the end of 4QFY2010. The poor advances’ growth further contributed to BSE Sensex 17,559
the deterioration of the Gross NPA and Net NPA ratios to 4.5% (2.5% in
4QFY2009 and 4.1% in 3QFY2010) and 2.5% (1.3% in 4QFY2009 and 2.2% Nifty 5,278
in 3QFY2010), respectively. The bank’s cumulative restructuring stood at Reuters Code IOBK.BO
Rs6,700cr, down from Rs8,529cr in 3QFY2010, on account of recoveries and
upgradations. The restructured assets still constitute 8.3% of the advances and Bloomberg Code IOB@IN
87% of the Networth, which is higher than the industry average.
Shareholding Pattern (%)
Outlook and Valuation: Among mid-sized banks, IOB offers a combination of Promoters 61.2
a moderate CASA franchise (32% CASA ratio) and Fee income, shored up by
MF/Banks/Indian FIs 15.6
high financial leverage. However, the bank’s erstwhile high yield on assets
and the resulting high ROEs have given way to rapid asset-quality FII/NRIs/OCBs 9.3
deterioration, RoE compression and earnings de-growth. Moreover, there are
downside asset-quality risks from huge restructuring done by the bank. From Indian Public 13.9
the highs of 30%+ average RoEs during FY2002-08 (highest in the sector), Abs (%) 3m 1yr 3yr
the Bank’s core RoE is expected to correct to the 12.0% level during FY2010-
12E. At the CMP, the stock is trading at 4.9x FY2012E EPS of Rs19.2 and 0.7x Sensex 7.3 54.0 26.3
FY2012E Adjusted Book Value of Rs143. Due to concerns on asset quality, we
maintain a Neutral rating on the stock. IOB 3.8 49.5 (17.8)
Key Financials
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
NII 2,870 3,168 3,639 4,080
% chg 7.1 10.4 14.9 12.1
Net Profit 1,326 707 592 1,046
% chg 10.3 (46.7) (16.2) 76.5
NIM (%) 2.7 2.6 2.6 2.4 Vaibhav Agrawal
EPS (Rs) 24.3 13.0 10.9 19.2 Tel: 022 – 4040 3800 Ext: 333
P/E (x) 3.9 7.3 8.7 4.9 E-mail: vaibhav.agrawal@angeltrade.com
P/ABV (x) 1.0 1.0 0.8 0.7
RoA (%) 1.2 0.6 0.4 0.6 Amit Rane
Tel: 022 – 4040 3800 Ext: 326
RoE (%) 24.8 11.4 8.8 14.2
E-mail: amitn.rane@angeltrade.com
Source: Company, Angel Research
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

2. Indian Overseas Bank I 4QFY2010 Result Update
Exhibit 1: 4QFY2010 Performance
Y/E March (Rs cr) 4QFY10 3QFY10 % chg (qoq) 4QFY09 % chg (yoy) FY10 FY09 % chg
Interest Earned 2,548 2,570 (0.9) 2512 1.5 10,246 9,810 4.4
Interest Expenses 1,727 1,776 (2.7) 1807 (4.4) 7,078 6,772 4.5
Net Interest Income 821 794 3.3 704 16.5 3,168 3,038 4.3
Non-Interest Income 282 259 9.1 623 (54.7) 1,144 1,595 (28.3)
Total Income 1,102 1,053 4.7 1327 (16.9) 4,311 4,633 (6.9)
Operating Expenses 647 647 0.0 514 25.8 2,466 1,942 27.0
Pre-Prov Profit 456 406 12.2 813 (43.9) 1,845 2,691 (31.4)
Provisions & Cont. 460 219 110.3 277 66.0 784 737 6.4
PBT -4 187 (102.2) 536 (100.8) 1,061 1,954 (45.7)
Prov. for Taxes -132 86 (253.6) 213 (161.8) 272 629 (56.7)
PAT 128 102 25.4 322 (60.4) 789 1,326 (40.5)
EPS (Rs) 2.3 1.9 25.4 5.9 (60.4) 14.5 24.3 (40.5)
Cost to Income (%) 58.7 61.4 38.8 57.2 41.9
Effective Tax Rate (%) 3,173.0 45.7 39.8 25.6 32.2
Net NPA (%) 2.5 2.2 1.3 2.5 1.3
Source: Company, Angel Research
Poor Operating Performance Continues
The advances of the bank grew at a muted 6.6% yoy to Rs80,782cr in 4QFY2010.
The deposits grew at a higher pace of 10.7% yoy to Rs1,10,795cr, taking the credit-
deposit ratio to 72.9% (74.7% in 3QFY2010). The NII of the bank increased by 3.3%
qoq to Rs821cr in 4QFY2010. The reported NIMs of the bank remained flat
sequentially in 4QFY2010 at 2.73%. CASA deposits increased by 19.0% yoy to
Rs36,050cr at the end of 4QFY2010. The bank is targeting an advances and
deposits growth of 22% and 20%, respectively, in FY2011E.
Exhibit 2: Trend in Quarterly Advances and Deposits
120,000 12.00
100,000 10.00
8.00
80,000
6.00
60,000 4.00
(Rs Cr)
(%)
40,000 2.00
-
20,000
(2.00)
- (4.00)
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
Advances Deposits QoQ Advances Growth QoQ Deposits Growth
Source: Company, Angel Research
April 30, 2010 2

3. Indian Overseas Bank I 4QFY2010 Result Update
Poor Non-interest Income Performance
Non-interest income declined by 54.7% yoy to Rs282cr, due to lower treasury gains
of Rs37cr (compared to Rs317cr in 4QFY2009). The non-interest income excluding
treasury income was also disappointing at Rs245cr (down 19.9% yoy.
Asset-quality Pressures continue
The Gross NPAs of the bank increased by 12.2% sequentially and 87.7% yoy to
Rs3,611cr in 4QFY2010. The bank has a poor coverage ratio of 55%, including
technical write-offs. The poor advances’ growth further contributed to the
deterioration of Gross NPA and Net NPA ratios to 4.5% (2.5% in 4QFY2009 and
4.1% in 3QFY2010) and 2.5% (1.3% in 4QFY2009 and 2.2% in 3QFY2010),
respectively. The bank’s cumulative restructuring stood at Rs6,700cr, down from
Rs8529cr in 3QFY2010, on account of recoveries and upgradations. The
restructured assets still constitute 8.3% of the advances and 87% of the Networth,
which is higher than the industry average. There was slippage of Rs560cr during
4QFY2010 from restructured accounts. The gross slippage of the bank stood at
4.1% (Rs3,125cr in FY2010 v/s Rs2,262cr in FY2009). We expect the pressure on
asset quality to continue for another quarter or two for the bank.
Exhibit 3: Asset Quality Trend
5.0 70.0
4.5
60.0
4.0
3.5 50.0
3.0 40.0
2.5
2.0 30.0
1.5 20.0
1.0
10.0
0.5
0.0 0.0
4QFY08
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
Coverage Ratio (RHS) Gross NPA Ratio (LHS) Net NPA Ratio (LHS)
Source: Company, Angel Research
April 30, 2010 3

4. Indian Overseas Bank I 4QFY2010 Result Update
Higher Provisions to pressurise Profitability
With the rising level of slippages, the bank had to provide Rs472cr in 4QFY2010
(more than double of Rs196cr in 4QFY2009 and Rs232cr in 3QFY2010) towards
NPAs. The bank has 30% of its investments in AFS, with a modified duration of 2.5
years. The bank also has a high modified duration of 5.7 years on an overall
investment book of Rs36,720cr, implying higher exposure to interest rate risks in a
rising interest scenario. The bank has a low provision coverage ratio of 55%,
including technical write-offs, which has to be improved to 70% by September 2010
as per the RBI norms, implying an additional provision of Rs570cr in FY2011E,
assuming that there is no further slippage. Additionally, the bank will have to make a
provision of Rs82cr in FY2011E towards the acquisition of Suvarna Sahakari Bank.
Thus, we expect the pressure on ROEs to increase, going forward, on account of an
estimated increase in provisions by 35.4% in FY2011E (26.1% increase in FY2010).
Operating Expenses rise
The total operating expenses jumped by 25.8% yoy and were flat sequentially, to
Rs647cr. With a 16.9% yoy decline in operating income, the cost-to-income ratio of
the bank deteriorated to 58.7% (38.7% in 4QFY2009), which is among the poorest
in the industry.
Capital Adequacy
The bank’s CAR stood at 14.8%, with Tier-I capital of 8.7% (forming 59% of the total
CAR). We expect the bank’s advances growth to bounce back in FY2011E to the
18.0% level, especially on the back of a low base in FY2010.
Outlook and Valuation
Among mid-sized banks, IOB offers a combination of a moderate CASA franchise
(32% CASA ratio) and Fee income, shored up by high financial leverage. However,
the bank’s erstwhile high yield on assets and the resulting high ROEs have given way
to rapid asset-quality deterioration, RoE compression and earnings de-growth.
Moreover, there are downside asset-quality risks from huge restructuring done by the
bank. From the highs of 30%+ average RoEs during FY2002-08 (highest in the
sector), the Bank’s core RoE is expected to correct to the 12.0% level during FY2010-
12E. At the CMP, the stock is trading at 4.9x FY2012E EPS of Rs19.2 and 0.7x
FY2012E Adjusted Book Value of Rs143. Due to concerns on asset quality, we
maintain a Neutral rating on the stock.
April 30, 2010 4

5. Indian Overseas Bank I 4QFY2010 Result Update
Exhibit 4: P/ABV Band –Indian Overseas Bank
(Rs)
300
250
200
150
100
50
0
Mar-02
Dec-02
Apr-03
Aug-03
Dec-03
Apr-04
Aug-04
Dec-04
Apr-05
Aug-05
Dec-05
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Jul-02
Price 0.40x 0.80x 1.20x 1.60x 2.00x
Source: Company, Angel Research
April 30, 2010 5

6. Indian Overseas Bank I 4QFY2010 Result Update
Income Statement (Rs cr) Ratio Analysis
Y/E March FY2009 FY2010E FY2011E FY2012E Y/E March FY2009 FY2010E FY2011E FY2012E
Net Interest Income 2870 3168 3639 4080 Profitability ratios (%)
YoY Growth (%) 7.1 10.4 14.9 12.1 NIMs 2.7 2.6 2.6 2.4
Other Income 1713 1143 1066 1264 Cost to Income ratio 42.4 57.2 57.7 57.9
YoY Growth (%) 59.3 (33.3) (6.7) 18.6
RoA 1.2 0.6 0.4 0.6
Operating Income 4583 4311 4706 5344
RoE 24.8 11.4 8.8 14.2
YoY Growth (%) 22.0 (5.9) 9.2 13.6
Operating Expenses 1942 2466 2713 3093 B/S ratios (%)
YoY Growth (%) 30.7 27.0 10.0 14.0 CASA ratio 30.3 32.6 31.5 30.2
Pre - Provision Profit 2641 1845 1993 2251 Credit/Deposit ratio 74.8 72.9 72.9 73.5
YoY Growth (%) 16.4 (30.2) 8.0 13.0
CAR 11.8 14.8 12.7 12.2
Prov. & Cont. 687 866 1172 803
- Tier I 7.0 9.1 7.6 7.2
YoY Growth (%) 11.7 26.1 35.4 (31.5)
Profit Before Tax 1954 979 820 1448 Asset Quality (%)
YoY Growth (%) 18.1 (49.9) (16.2) 76.5 Gross NPAs 2.5 4.4 3.7 3.2
Prov. for Taxation 629 272 228 402 Net NPAs 1.3 2.4 1.0 0.8
as a % of PBT 32.2 27.8 27.8 27.8
Slippages 3.7 4.1 2.5 2.3
PAT 1326 707 592 1046 NPA prov. / avg.
0.3 0.7 0.7 0.4
- YoY Growth (%) 10.3 (46.7) (16.2) 76.5 assets
Provision coverage 48.1 45.6 73.3 75.5
Per Share Data (Rs)
EPS 24.3 13.0 10.9 19.2
ABVPS (75% Cover.) 99.5 99.6 126.5 142.7
DPS 4.5 2.5 2.0 3.5
Valuation Ratios
Balance Sheet (Rs cr)
Y/E March FY2009 FY2010E FY2011E FY2012E P/E (x) 3.9 7.4 8.8 5.0
Share Capital 545 545 545 545 P/ABVPS (x) 1.0 1.0 0.8 0.7
Reserve & Surplus 6,606 7,154 7,619 8,441 Dividend Yield 4.7 2.6 2.1 3.6
Deposits 100,116 110,795 130,738 155,578 DuPont Analysis
Growth (%) 18.7 10.7 18.0 19.0 NII 2.6 2.5 2.5 2.4
Borrowings 6,548 7,247 8,551 10,176 (-) Prov. Exp. 0.6 0.7 0.8 0.5
Tier 2 Capital 2,837 3,404 4,017 4,820 Adj. NII 2.0 1.8 1.7 1.9
Other Liab. & Prov. 4,422 4,844 6,636 8,586 Treasury 0.6 0.2 0.0 0.0
Total Liabilities 121,073 133,988 158,106 188,146
Int. Sens. Inc. 2.5 2.0 1.7 1.9
Cash balances 5,940 5,540 9,152 11,668
Other Inc. 1.0 0.7 0.7 0.7
Bank balances 4,981 5,513 6,505 7,741
Op. Inc. 3.5 2.7 2.4 2.6
Investments 31,215 37,727 41,968 48,286
Opex 1.7 1.9 1.9 1.8
Advances 74,885 80,782 95,323 114,387
PBT 1.8 0.8 0.6 0.8
Growth (%) 23.9 7.9 18.0 20.0
Taxes 0.6 0.2 0.2 0.2
Fixed Assets 1,710 1,835 2,101 2,425
Other Assets 2,341 2,591 3,057 3,638 RoA 1.2 0.6 0.4 0.6
Total Assets 121,073 133,988 158,106 188,146 Leverage 20.9 20.5 21.7 23.5
Growth (%) 18.9 10.7 18.0 19.0 RoE 24.8 11.4 8.8 14.2
April 30, 2010 6

7. Indian Overseas Bank I 4QFY2010 Result Update
Research Team Tel: 022-4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Disclosure of Interest Statement Indian Overseas Bank
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies’ Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies.
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Tel : (022) 3952 4568 / 4040 3800
Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE:
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April 30, 2010 7