The Hindu Business Line : PSBs post 47% profit growth in first quarter

Chennai, Aug. 3 It has been a very profitable first quarter for public sector banks. With almost the entire set of numbers coming in from PSBs, save three, it is clear that they have raked in a lot.

Twenty-five public sector banks saw their first quarter profits rise a whopping 47 per cent. The growth numbers of course were ranged across the entire spectrum, and could look a trifle rosier because of the extreme deviations on the scorecard. Even so, the median growth for this segment was 34 per cent.

Interest income

The contribution from the staple diet of interest income was significant while other income (that comprises earnings from commission, exchange brokerage, profit on sale of land or buildings or other assets, etc.) also showed stable growth. Interest income for the group grew 33 per cent while other income rose 22 per cent.

High loan growth of 30 per cent over the past four years and a “slowdown” to about 25 per cent during this quarter have ensured that banks get more out of their lending business than through selling off their investment portfolio. The hike in interest rate has also helped matters and for most banks, their yield on advances was up by between 1 to 1.25 percentage points.

NIM at 3%

Although deposit costs were also up (by nearly one percentage point on the average), banks were able to recover the extra charge through their lending. This helped them maintain their net interest margin at close to 3 per cent.

It also helped that banks did not have to provide much for the depreciation of their investment portfolio. Yields on government securities (the 10-year bond for instance) remained fairly stable and moved in a close band around 8.1 per cent through the first quarter.

Banks seem poised to gain a bit in the second quarter. There is every likelihood of deposit rates being cut while lending rates may not follow suit immediately. That should preserve their margins at 3 per cent or improve it a little bit.