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— G.R.N. Somashekar

Mr Prakash P. Mallya, Chairman and Managing Director, Vijaya Bank, addressing a press conference in Bangalore on Wednesday.

Our Bureau

Bangalore, Oct 24

Public sector Vijaya Bank hopes to finalise its foray into the insurance sector by the end of this financial year.

The Vijaya Bank Chairman and Managing Director, Mr Prakash P. Mallya, said, “We are looking at the non-life sector and are in the process of appointing consultants for identifying a partner.”

He said that talks were still under way with Punjab National Bank for pulling out of the life insurance venture, where the US-based Principal group is the foreign joint venture partner.

Referring to investments in IFCI Ltd (Industrial Finance Corporation of India Ltd), Mr Mallya said, Vijaya Bank, intended converting 30 per cent of its Rs 62-crore zero coupon optionally convertible debentures into equity.

The balance portion of the zero coupon bonds would be converted into floating rate bonds with coupon payout fixed at 50 basis points below the 10-year Government security. Vijaya Bank’s gross exposure in IFCI is Rs 128 crore, of which at least Rs 66 crore are in the form of 6 per cent debentures.

The bank reported a 3 per cent increase in net profit for the second quarter of the current fiscal to Rs 105.25 crore. The increase was driven by interest income that rose to Rs 658.13 crore, up from Rs 412.91 over the corresponding period of last year.

Mr Mallya admitted that credit growth was still a matter of concern, though Vijaya Bank managed to grow its advances portfolio by 36 per cent to Rs 26,811 as at the end of the second quarter. Despite the increase, the net interest margin, the difference between interest earned and interest expended shrank to 2.61 per cent, down from over 3 per cent last year.

The bank was now focusing on short term advances at low rates, instead of long term advances, he added. This was to improve its short term earnings. By March-end, the bank hoped to grow its advances by at least 24 per cent, he added.

However, the bank’s treasury earnings were down in Q2 FY08. Profit from treasury operations was Rs 14.38 crore against Rs 31.92 crore in the corresponding period of last year. But Mr Mallya said, “Treasury profits this year will be about Rs 110 crore. He said the bank’s internal estimate for the current year was that net profit would be in the region of Rs 450 crore.

This estimate was based on the bank’s business projection of Rs 76,000 crore for the current year, consisting of advances of at least Rs 31,000 crore. To sustain the credit growth, Vijaya Bank intended raising bonds of up to Rs 300 crore, as tier-two capital.

Mr Mallya said that implementation of core banking solution had brought costs down to 9 per cent of gross revenues from 12.4 per cent in the same period last year.

More Stories on : General Insurance | Public Sector Banks

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