Among the Karnataka headquartered banks, Canara Bank and Corporation Bank are expected to witness sound growth in the current financial year on the back of increase in interest income and improvement in net interest margin.
According to analysts, in the public sector space, Vijaya Bank and Syndicate Bank will see traction in the business growth but have to concentrate on increase in advances with sound asset quality.
Further, among the Karnataka-based private sector banks, ING Vysya will witness good growth this fiscal after a year of muted performance.
“Canara and Corporation banks are the best picks among all the Karnataka-headquartered banks on the basis of net interest margin and net interest income for both the public lenders,” Clyton Fernandez, an analyst with Mumbai-based brokerage firm Anand Rathi said.
Net interest margin for Canara Bank improved to 2.80 per cent in FY10 from 2.78 per cent a year before. Net interest income for the bank witnessed a growth of 20.4 per cent to Rs 5681 crore during this period.
Another indicator of profitability, current account and savings account (CASA) grew 32.3 per cent in FY10 with a contribution of close to 30 per cent of the overall domestic deposit.
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However, Fernandez said Canara Bank had to increase the NPA coverage ratio with focus on improvement on asset quality.
About Corporation Bank, he said as the bank posted a margin expansion by 2.5 per cent in the fourth quarter with falling NPA ratio, it was likely to perform better in the current fiscal.
The bank, which registered a growth of close to 30 per cent in credit volume, has to improve the net interest margin further for improved profitability, he added.
In addition to these two public lenders, institutions like Vijaya and Syndicate banks are also likely to see growth this fiscal with improvement in overall macroeconomic environment.
An analyst with Motilal Oswal said, “Despite a dip in the net interest income of Vijaya Bank during the fourth quarter of FY10, net profit and net interest margin has improved indicating good growth prospects during this fiscal.”
Vijaya Bank posted a 44 basis point improvement in net interest margin to 2.73 per cent during last quarter of FY10 on the back of improved asset quality.
However, he said the bank had to address the issue of gross provisioning, which stands at 64 per cent as of now. Similarly, Syndicate Bank has to aggressively push for growth in advances, which stood at 11 per cent last fiscal, to improve its financial health of the bank.
Referring to ING Vysya Bank, Rajib Mehta, an analyst with India Infoline, said, “Though the net interest margin of the bank substantially improved to 3.58 per cent during the last quarter of FY10 from 2.55 per cent a year earlier, it has to concentrate on provisioning coverage ratio which stands at 60 per cent for the bank.”