Banks turn in good show on brisk credit offtake

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Loan growth in Q1 averaged 30 pc; net interest margins stay flat

Radhika Kamath

Bangalore, Aug. 7

Despite being a slack season for banks, the first quarter this year has seen many banks reporting good set of numbers mainly due to the buoyancy in credit. The loan growth for the quarter averaged to about 30 per cent, that helped banks register an impressive growth in net interest income (NII).

Yield on advances, on an average, rose by 20-30 basis points to about 8.7 per cent. Aided by higher yields, NII for public sector banks increased by about 15 per cent on a year-on-year basis.

Industry leader State Bank of India, however, recorded a 9 per cent dip in its NII. The bank had benefited from a one-time tax refund of Rs 700 crore in the corresponding quarter last year that had helped boost its NII.

If one were to exclude this item to make a fair comparison, then the NII would have been higher by about 10 per cent.

Private sector banks, once again, managed to excel their counterparts in public sector on this parameter. The NII growth for these banks averaged to about 56 per cent.

Deposits for the banking sector grew by about 19 per cent. Rising interest rates has had its impact on the cost of working funds.

While yields on advances improved, cost of deposits also went up by about 15-20 basis points for most banks. This may be the reason for net interest margins for the quarter remaining almost flat.

Higher provisioning

Profit growth has been subdued for banks on account of higher provisioning on investments and standard assets. Provisioning, in the case of public sector banks, witnessed a growth of about 50 per cent against a higher growth of about 65 per cent for private sector banks. This has largely resulted in lower profit growth for most of the public sector banks.

Strong PAT

Despite higher provisioning and rising wage costs, new private sector banks' showing on profit after tax has been strong.

While HDFC Bank and UTI Bank led the league with a 30 per cent profit growth, ICICI Bank trailed behind with a modest 17 per cent growth.

For PSBs such as Punjab National Bank, Canara Bank, Bank of Baroda, profit growth was largely muted at about 3 per cent, while IOB and Bank of India were impressive with a rise of about 21 per cent.

Among the old private sector outfits, Federal Bank and Karnataka Bank disappointed with a negative growth in after tax profit, while Karur Vysya Bank managed a marginal rise of 1.9 per cent.

While treasury income has shown a mixed trend, fee income for most banks has been encouraging, clocking a growth of 30-40 per cent on an average.

(This article was published in the Business Line print edition dated August 8, 2006)
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