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Suresh Krishnamurthy

INVESTORS can consider exposures in the Bank of India stock at the price of Rs 49.

At this price, the dividend yield on the stock is attractive at 6 per cent. The relatively high dividend yield indicates that the stock is undervalued relative to peers and will limit the downside for the stock. However, the bad loans in its books are a cause for concern. At about 5.6 per cent of net advances, it is amongst the highest in the industry. The need for further provisions could lead to decline in profits in the years ahead. The potential for rise in price is thus squarely dependent on a reduction in the bank's exposure to bad loans. In this context, other factors such as Government's scheme for buyback of loans, recovery in the economy and the sizeable balance sheet growth possible for banks, augur well. If these lead to reasonable profit growth, then the pay off for investors will be sizeable.

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