Bank of Maharashtra was one of the banks that had been classified by the RBI as eligible for Prompt Corrective Action (PCA). The whole idea of PCA was applicable to companies with net NPAs beyond a threshold with a view to putting curbs on branch expansion, dividend payments, top management compensation till the time the bank improves on its debt recover process. BOM has come out of PCA effective from January this year.

What did the Q4 results look like for Bank of Maharashtra?

The quarter marked a turnaround for the bank as it moved to a net profit of Rs.72 crore in the fourth quarter from a loss of Rs.113 crore in the corresponding quarter last year. Gross NPAs came down from 19.4% to 16.3% although the situation still remains quite serious. The real revelation was the fall in net NPAs from 11.2% to 5.5% in the latest quarter helped on by huge write offs that the bank has already taken. The total net interest income (NII) of the bank improved in the quarter from Rs.881 crore to Rs.1000 crore, showing a definite growth trend.

Should you buy the stock at current prices?

The stock currently quotes at Rs.19, which is close to its one year high price. The company has just turned into profits in this quarter and the next few quarters will be critical. Also, nearly 55% of the company’s business comes from SME lending and that is the sector that has been under tremendous stress in the last few years. How much that will impact the profits in the coming quarters remains to be seen. Our view is that the risk-reward may be against the buying the stock at this point of time. While we like the PSU banking sector as an investment theme, one must look at PSU banks with scale like SBI or BOB for this turnaround.