Allahabad Bank

October 29, 2007

My notes on Allahabad bankAbout

Allahabad bank is one of the oldest banks in India with over 2000 branches. The bank’s branch network is predominant in UP, Bihar and other northern parts of the country. The bank also has 47 specialised branches for various business activities such as Industrial finance, Collection service, Treasury management etc. The Bank is a PSU bank

The bank was a basket case a few years back. I was reading a research report when the bank came out with an IPO in 2002. The bank had NPA of 10.5% which was actually a reduction from 15.1% in 1998. So technically the bank had a zero networth till 2002. The bank has improved its performance since then.


The Bank has improved its financials substantially in the last few years. The following Key parameters of the Bank have shown improvements from 2002 to 2007

ROE – 11.2 % to 22%

CAR – From 10.5% to 13%

Net NPA – from 10.5% to  0.9%

ROA – From 0.6% to 1.3%

Absolute Net NPA – from 1160 Cr to 315 Cr

Credit deposit ratio – from 48% to 65%

Income growth has been 15%+ for the last 5 years

Net profit has also grown by 20%+  per annum over the last 5 years

The following financial numbers have remained stable or not shown much of an improvement

Other income as a percentage of total assets

Provision ratio has dropped to 70%

Yield on asset – In line with fall in rates over the past few years.


  • – The key indicators such NPA, ROE, CAR, ROA, Credit deposit ratio, income and netprofit growth are good for the bank.
  • – The bank has been expanding its branch network and also getting into the international markets. In addition the bank has kept its NPA’s low in percentage terms and absolute level.
  • – The bank is also increasing the other income component. The other income which comprises of fee income, trading etc has grown at a much faster rate this year as compared to the Net interest income.
  • – Operating costs as a percentage of total income has dropped mainly due to reduction in manpower costs. The bank has thus become more efficient in the past few years.


The biggest risk for the bank is political interference. As the majority shareholder is our government, you can never be sure what hairbrained scheme they will come up with. In the past there have been loan melas, loan writeoff etc. This has reduced in the last few years, but you never know.

In addition the NPA are controlled. However the bank operates in UP, bihar etc. There is a small risk of the rise in the NPA.

Comparitive Valuation

The bank is currently selling at a PE of around 5 and a P/B of around 0.9. On a comparitive basis SBI sells for a PE of around 17 and P/B ratio of around 2.5.  SBI is a bigger bank, but on Key parameters such as ROE (around 18% ) , Growth rates (net profit around 8% for last 5 years)  etc is not much better than Allahabad bank.

The other top notch bank HDFC is priced at around 35 time PE and P/B of around 6.5. On certain parameters such NPA and  growth the bank is ahead of Allahabad bank, however ROE is higher for Allahabad bank. Finally the market recognizes the qualilty of HDFC bank’s management and performance and has priced it accordingly


Allahabad bank is one those non-glamorous, dull stocks. However key to investing is not how sexy the stock is or how much sizzle it has, but whether you can buy a stock at a discount to intrinsic value.

Personally I feel the stock is a bit undervalued, however I have yet to make up my mind on it . I don’t see an immediate catalyst to unlock the value, however if management continue to perform as it has in the past 4-5 years, the returns should be decent.


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