The Hindu Business Line : It's a mixed show by PSBs in Q3

PUBLIC sector banks have once again come up with a mixed bag in their third quarter results. Some have posted spectacular growth in profits, trebling and quadrupling the same. Banks who did very well in this quarter were Union Bank, Bank of Baroda and Dena Bank.

Some medium sized banks such as Andhra Bank, Vijaya Bank and Oriental Bank who had done well earlier had a relatively poor quarter. Corporation Bank was also the only one to post a 29-per cent dip in profits.

37 per cent net growth: On the average, 17 banks reported a 37 per cent growth in net profits. Banks gained from a 17 per cent growth in interest income, fuelled by increased lending. Loan growth has been of the order of 30 per cent.

Interestingly, most banks reported a drop in other income during this quarter. For the 17 banks, other income dipped 8 per cent. The rising cost of deposits was reflected partially in the higher costs that banks paid out during the quarter. Interest costs were up 21 per cent. This might go up further as many banks are in the process of reviewing their rates.

Interest rates may rise: Banks are competing to secure more resources and this may see interest rates inching up. Deposit growth has been of the order of 17 per cent and will need to gather more steam to keep pace with burgeoning loan growth.

SBI's performance: Industry leader State Bank of India had a very modest performance. The bank posted a mere 1.5 per cent growth in profits at Rs 1,115 crore for the quarter. This came despite a gain of nearly Rs 1,100 crore due to extraordinary circumstances. The bank redeemed the India Millennium Deposits to the tune of nearly $7.1 billion. At the time of launch of the scheme, the exchange rate was Rs 46.65 to the dollar. At the time of redemption, a month ago, the exchange rate was at Rs 45.12 to the dollar. This gain of Rs 1.5 per dollar could have fetched the bank nearly Rs 750 crore. The bank had reported an exchange gain of Rs 531.54 crore as other income. Despite this gain, its other income dipped nearly 18 per cent in the quarter.

SBI had also contributed to a fund with the Reserve Bank of India for possible depreciation of the rupee when the IMD scheme was launched. This amounted to about Rs 564 crore that has since been returned to SBI. This amount was reduced from interest expenses in SBI's books, according to the notes provided. SBI's interest income also included about Rs 954 crore earned as interest on refund of income-tax.

Apart from this, there was also a change in the accounting policy for its investments in Regional Rural Banks that resulted in profits being higher by Rs 87 crore.

Remove the effect of these changes and extraordinary income and SBI might well have posted a dip in profits in this quarter. The other five big banks, Punjab National Bank, Canara Bank, Union Bank, Bank of Baroda and Bank of India posted relatively good results this quarter.

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