ROBUST INTEREST INCOME FAILS TO IMPACT PROFITS OF PUBLIC SECTOR BANKS IN Q2

An analysis of the September quarter results of 23 public sector banks reveals that the robust growth in net interest income (NII) has not boosted the bottom line to the expected level.

While these banks saw a 54 per cent year on year growth in NII, their net profits grew only by 16 per cent for the quarter. Bank of Maharashtra, State Bank of Mysore, Union Bank and UCO Bank witnessed a fall in net profits compared with the September 2009 quarter. Though not strictly comparable due to the merger of State Bank of Indore, SBI's net profits were flat.

Increased provisions

A closer look at the numbers reveals that fall in ‘other income' growth and increased provisions (inclusive of write-offs, mark to market losses and standard asset provisioning) seem to be the key reasons for the subdued performance.

For example, from about Rs 141 crore last year, UCO Bank's provisions moved up to Rs 580 crore in the September 2010 quarter. Its net profits fell by 43 per cent.

On the other hand, Bank of India's net profits grew by 91 per cent, its provisions being 13 per cent lower. Amount set aside for provisions for these 23 banks grew 112 per cent on a year-on-year basis.

Although other income growth in a few cases such as Bank of Baroda and SBI was supported by an increase in fee-based income, a steep fall in treasury income and negligible profits on sale of investments in many other cases ensured that, overall other income growth fell by 6 per cent.

Attributed predominantly to restructured assets and agricultural debt waiver, gross NPAs of public sector banks increased by 33 per cent over the same period last year.

While gross NPAs of State Bank of Mysore and Andhra Bank rose 114 per cent and 94 per cent respectively, Vijaya Bank was the only exception, with gross NPAs seeing a 12 per cent decline over the second quarter of 2009.

Net NPA ratio did go down to 1.06 from 1.16 last year for Canara Bank and from 1.46 to 1.32 for Vijaya Bank ; but, on an overall basis, despite higher provisioning, net NPA ratio stood at 1.14 this quarter ( about 1 in September 2009 ).

On the brighter side, the trend of strong growth in net interest income (NII) witnessed in the June quarter has continued. Net interest margins (NIM) also expanded for almost all these banks.

Thanks to re-pricing of loans and liability management, Central Bank of India witnessed a 134 per cent rise in NII while its NIM jumped to 3.14 from 1.81 a year ago. NII of IDBI Bank too showed a 152 per cent growth.

Like in the June quarter, the growth in loan book has supported NII this time too. For all the 23 banks put together, total advances grew by 22 per cent. Allahabad Bank (37 per cent) and Corporation bank (33 per cent) recorded the maximum growth.

This implies that the rise in NII and better margins was aided as much by improving advances as by lower cost of funds, shedding of high cost bulk deposits and rising lending rates. Interest earned went up by 17 per cent on an average while the year-on-year growth in interest expenses was 2 per cent.

SOURCE: http://www.thehindubusinessline.com/2010/11/12/stories/2010111252990700.htm