The Hindu Business Line : PSU banks make profits, but not from lending

Chennai, Nov 2 Corporate India may be reporting good profit numbers. But lending money didn’t make much for public sector banks as a group in the second quarter ended September 30. Their net interest income (or interest earned less interest expense) did not grow at all in this quarter. Yet profits grew 23 per cent for a set of 21 public sector banks for which the figures are available.

Non-lending income

It was liquidation of some of their equity investments, cashing in on the stock market boom, some recoveries of old bad debts, some treasury gains from the bond and forex markets and some other non-interest income that rescued public sector banks this quarter. Other income grew 45 per cent for these banks contributing almost the entire profits for this quarter.

MIXED Performance

As is the norm, the performance of public sector banks spanned the entire range – with Bank of India doubling profits while Oriental Bank of Commerce reporting a 30 per cent drop in profits. The median growth for this group of 21 banks was about 14 per cent.

Big banks such as State Bank of India and Canara Bank reported a drop in net interest income. For all public sector banks, the drop in loan growth (a slowdown to 23 per cent after four years of 30 per cent growth) contributed to the dip in net interest income.

The high-cost deposits that they had picked up towards the end of the last fiscal ate into the margins of these banks.

Comparatively, private banks did better. The profits of about 16 private banks grew 34 per cent riding on a robust 38 per cent growth in net interest income and a healthy 33 per cent growth in other income.

All banks are hopeful of improving their net margins in the third quarter. This is the busy season for credit. So, one can expect a pick-up there. As for deposit costs, there are indications that a cut may be around the corner. Banks can then hope to make more money by just lending it.

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More Stories on : Public Sector Banks | Financial Performance

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