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M.V.S. Santosh Kumar

After growing at a frenetic pace last quarter, banks have struggled to do an encore in the September quarter, as lending slowed, margins fell, and provisions rose. Advances of banks grew at a modest rate of 13 per cent over the same period last year, while the net interest income managed an even lower growth of 8 per cent. This implies that the margins of banks have shrunk for the quarter.

Profit growth for banks moderated to 20 per cent in the quarter ended September 2009, from 63 per cent growth in the June quarter. Profits were once again aided by ‘other income’ growth of 41 per cent.

Public sector banks (PSBs) again managed a better showing, with profits growing by 20.7 per cent in the latest quarter, compared with the 18 per cent clocked by private banks. In the June quarter, PSBs grew profits by 70 per cent, outpacing private banks (40 per cent). The low growth managed by ICICI Bank weighed on the performance of private banks.

The above numbers, however, hide substantial divergence between banks within each group as well. Allahabad Bank, Central Bank of India, Lakshmi Vilas Bank, Kotak Mahindra Bank and IndusInd Bank doubled profits, while Allahabad Bank saw a seven-fold expansion in profits from a depressed base in September 2008. Larger banks such as Bank of Baroda and Canara Bank grew at a strong pace.

However, Bank of India, Indian Overseas Bank, Federal Bank, Karnataka Bank and Syndicate Bank saw profits shrink due to various factors — higher provisioning, muted treasury gains and decline in net interest income. Development Credit Bank continues to be the only loss-making bank in the listed space. IndusInd Bank, Lakshmi Vilas Bank, Karur Vysya Bank and YES Bank are some smaller private sector banks that have seen their profit expand helped mainly by core lending operations.

Banks such as Syndicate Bank, Union Bank, Central Bank of India have witnessed a fall in their net interest margins (NIMs) while IDBI Bank, YES Bank, Vijaya Bank and IndusInd Bank are some banks that have seen their NIMs improve.

Provisions and contingencies for the banking universe grew by 30 per cent, contributed predominantly by NPA provisions. Asset quality deteriorated sequentially with gross NPAs moving from 2.29 per cent of gross advances to 2.35 per cent; 19 out of 39 banks have seen their asset quality (gross NPA ratio) deteriorate sequentially. They had more impact on the overall asset quality of the banks compared with the 20 banks that have improved their gross NPA ratio.

Bank of India, Syndicate Bank, Bank of Maharashtra and ING Vysya are among the top banks that have seen their gross NPA deteriorate by more than 40 basis points (bps) over the quarter. Kotak Mahindra Bank, Dena Bank, HDFC Bank, Punjab National Bank and South Indian Bank have seen their asset quality improve sequentially. The overall provision coverage for all the listed banks stood at 55 per cent which, according to the RBI’s recent stipulation, has to be increased to 70 per cent over the next one year. The current net NPA ratio of all banks was maintained at 1.05 per cent despite higher increase in provisioning.

More Stories on : Banking | Financial Performance

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