High offtake, PLR hikes save banks the blushes

The Indian banking sector has overcome concerns pertaining to the rising cost of funds and an increase in provisioning requirements under the new RBI norms, to post a healthy rise in net interest income (NII) during the quarter ended March 2007. A robust 25.2 per cent growth in net interest income led to a net profit growth of 32 per cent during the quarter.

The revision of prime lending rates and high credit offtake have contributed to the healthy growth in net interest income, according to R K Bakshi, general manager, Bank of India. The repricing (read arising) of loans given at sub-PLR rates also helped improve NII and margins.

The banks' NII growth rate over the last four quarters ranged between 13 per cent and 19 per cent. Syndicate Bank, Dena bank, State Bank of India and its associate banks were among the top performing public sector banks during the quarter. Kotak Mahindra Bank, HDFC Bank and ICICI Bank stole the show among private sector banks. 

SITTING PRETTY
	Q4 growth (%)
	Income	Expense	NII
Kotak Mahindra Bank	99.85	128.67	75.17
Syndicate Bank	63.96	70.24	53.34
HDFC Bank	44.34	36.45	51.16
UTI Bank	64.15	73.64	48.38
Dena Bank	36.05	30.61	45.19
Indian Overseas Bank	50.24	57.43	41.98
ICICI Bank	60.58	72.55	36.43
State Bank of India	35.64	45.75	21.54
Punjab National Bank	28.39	37.45	18.65
Canara Bank	34.29	52.90	7.68
Income: interest income, Expense: interest expended, NII : net interest income

The NII of public sector banks has increased by around 8 per cent to 13 per cent in the four quarters to a healthy 21.33 per cent in the March 2007 quarter.

Private sector banks surpassed their state-owned peers with a 38. 9 per cent growth in NII during the fourth quarter ended March 2007, but the rate of growth has fallen compared with 52.2 per cent in the fourth quarter ended March 2006.

Contrary to market perceptions, almost all banks have shown year-on-year growth in net interest margins. While the cost of funds has undoubtedly gone up, the same has been offset by increases in prime lending rates (PLR) ranging between 100 basis points and 300 basis points.

While the cost of funds for listed banks moved up by an average of 96 basis points, the rise in PLR was much healthy at 110-120 basis points. According to a study by SSKI Research, the PLR rates have been hiked between 175 basis points and 250 basis points on an average, in the fourth quarter of 2006-07.

The average PLR hike in the case of State Bank of India, Punjab National Bank, Bank of Baroda and Canara Bank during the quarter was 175 basis points. ICICI Bank hiked its PLR by 250 basis points since December 2006.

The deposit costs of public sector banks increased by an average of 61 basis points in the fourth quarter compared with 150-175 basis points increase in deposit rates. Deposit costs of private banks increased by 98 basis points compared with an increase of 180 basis points in deposit rates.

The benefit of a revision is immediate (same quarter) as the PLR-linked loans are repriced automatically. Most banks revised their PLRs thrice in 2006-07.

"The gains for banks would depend on the cost of funds, including deposits, as competition for resources had forced banks to up their rates," a senior Bank of Baroda official said.