Higher interest income and rise in fee income also helped the bank's earnings growth during the three-month period.
"We have sold assets worth Rs 732 crore, which are fully provided for, to ARCs during the quarter. Against these the bank has received Rs 350 crore. It contributed to 130.35% rise in our other income. Going forward, we will continue to explore opportunities to sell stressed assets," Shubhalakshmi Panse, chairperson and managing director of Allahabad Bank, said in her post-earnings comments.
Net interest income, or the difference between interest income and interest expense, grew by 11.5% from a year ago to Rs 1,309 crore in July-September period. Net interest margin declined by five basis points year-on-year to 2.75% during the quarter as the rise in cost of funds outpaced the increase in yields on advances.
The state-run lender aims to improve its net interest margin to three% by the end of this financial year. Panse said the bank has decided not to revise its lending and deposit rates for now as the government wants lenders to offer consumer loans at low interest rates in the current festive season.
The year-on-year growth in fee income was 32.3% during the quarter.
The credit quality of the bank deteriorated further even though the pace of fresh bad loan additions decelerated during the quarter. Fresh slippages were Rs 1,199 crore in July-September period compared to Rs 1,719 crore a year earlier. Gross bad loan ratio increased by almost 200 basis points from a year ago to 4.94%, while net non-performing asset ratio deteriorated by over 170 basis points year-on-year to 3.83% at the end of September, 2013.
Provisions increased by 54.5% year-on-year to Rs 878 crore during the second quarter. The provision coverage ratio was around 46%. The bank's restructured loan portfolio was Rs 13,611 crore at the end of September, 2013. It has a restructured loan pipeline of around Rs 974 crore.
Gross credit increased by 19.4% from a year ago to Rs 133,866 crore aided growth in retail loans. Deposits were up 11.4% year-on-year at Rs 180,396 crore.
Panse said the government has decided to infuse Rs 400 crore in the bank. In addition, the lender aims to raise Rs 330 crore through a qualified institutional placement (QIP).
The bank closed the quarter with a capital adequacy ratio of 10.72% as per Basel III norms. Its tier I ratio was 7.86%.