The Hindu Business Line : PSBs suffer 9% dip in profits, see rise in lending

A four-year trend of rising profits for public sector banks is now reversing. With only a few more results due to come in, profits of public sector banks have suffered a dent of 9 per cent on an average in 2004-05. In 2003-04, profits had grown by 35 per cent.

Eighteen out of 27 banks have declared their results. Ten have posted dips in profits ranging from 5 per cent to 66 per cent. The worst affected was Bank of India that saw profits drop to Rs 340 crore from Rs 1,008 crore in the previous year.

The drop in profits was mainly due to the fall in treasury profits (the gains that banks made on the sale of government securities). Treasury profits accounted for a significant portion (in many cases, almost the whole) of the profits made by banks during the past three years.

In 2004-05, interest rates began to rise. This meant that banks suffered a big depreciation in the value of their government securities portfolio, since rates and bond prices move in opposite directions. The Reserve Bank of India (RBI) mitigated the impact of the rate reversal by allowing banks to transfer a part of their government securities portfolio to the held to maturity (HTM) category. This was earlier allowed once, in the beginning of the year, and was allowed an extra time last fiscal.The RBI also increased the limit on the securities that could be transferred to the HTM category. The main advantage of transferring these securities to this category is that any future decline in market prices would not have to be provided for. Various banks took large one-time hits while using the transfer option. Vijaya Bank, for instance, had to take a hit of Rs 128 crore after transferring Rs 1,093-crore securities, while Bank of India suffered a hit of Rs 528 crore. The provision for wage arrears, following the settlement with unions last year, ate slightly into the profits of some banks. Others were affected by the absence of extraordinary income in 2004-05, which they had got in the previous year, courtesy the government debt buyback scheme.

The one silver lining last fiscal was a huge rise in bank lending — a growth of 26 per cent for the banking system as a whole. Interestingly, private banks such as HDFC Bank, UTI Bank and ICICI Bank did quite well (posting profit growth of 20 to 30 per cent), even as public sector banks struggled.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
The changing face of banking

Stress testing and Basel accord

Rupee weakens; bond prices fall

HDFC Standard Life posts 132 pc rise in new business premium

SBI Life premium income grows 166 pc

Govt revises design of non-judicial stamp paper

Federal Bank to beef up presence outside Kerala

PSBs suffer 9% dip in profits, see rise in lending

Floating Rate Bond rates

SBI, HDFC dilute stake in CIBIL

To lower depreciation risk on Treasury operations — Banks switch over to T-bills

`Banks must assess their competence before going global'