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State Bank of Travancore (SBT) has become the latest in the line of public sector banks to take a hit in profitability from new pension and gratuity liabilities and attendant provisioning requirements.
Growth in net profit during the fourth quarter has been compressed to 9.70 per cent (Rs 238.31 crore as against Rs 217.22 crore of the previous year) while year-on-year, it has shrunk to 6.35 per cent (Rs 727.72 crore against Rs 684.26 crore).
ADDITIONAL OUTGO
The annual profit would have been higher at Rs 861.73 crore (a growth of 25.93 per cent over that of the previous year) had the additional outgo of Rs 134.38 crore in pension and gratuity liabilities not intervened.
Announcing the annual results here, Mr P. Pradeep Kumar, Managing Director, SBT, said that this amount has been charged to the profit and loss account in line with the Reserve Bank guidelines.
This is a fifth of the additional liability of Rs 671.91 crore on account of re-opening of pension option for existing employees who had not opted for pension earlier, as well as the enhancement of gratuity limits.
The Reserve Bank has allowed the banks to amortise the additional liability over a period of five years, starting March 31, 2011.
PROVISIONS JUMP
Provisions (other than tax) and contingencies have jumped 86.75 per cent quarter-on-quarter (Rs 91.29 crore against Rs 48.88 crore) and a significant 248.76 per cent year-on-year (Rs 293.94 crore against Rs 84.28 crore).
The contrast becomes starker given that slippage in NPAs has been comparatively miniscule, 9 per cent (gross) and 7.69 per cent (net).
The bank has even managed to strike the golden mean to either side of the ‘one per cent norm' with respect to Return of Assets at 1.12 per cent and net NPAs at 0.98 per cent. The net interest margin has improved from 2.82 per cent to 2.87 per cent.
SILENT PERIOD
Mr Pradeep Kumar refused to provide guidance to net profit and other key variables going forward, as the bank is entering a silent period ahead of a planned rights issue of Rs 500 crore.
A board meeting to be convened on May 28 is expected to take up the issue. Both parent bank State Bank of India and the Reserve Bank have given their go-ahead for the issue.
The capital augmentation will serve to improve the capital adequacy ratio of 12.54 per cent (Basel II). The Tier-I ratio was 9 per cent as on date.
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