Lower provisions buoy banks' profit 40% in Q3

Lower provisioning helped 32 listed banks to clock an aggregate 40 per cent growth in net profit during the quarter ended December 2005. This is despite a modest 1.44 per cent growth in net profit by the State Bank of India (SBI).

The banks' aggregate net profit increased by Rs 1367.97 crore, while their provisions and contingencies declined by a hefty 46.26 per cent to Rs 2987.48 crore.

SBI showed a drop of Rs 1240.73 crore in provisions, while ICICI Bank increased it by 286.84 crore. Overall, the provisions of 22 banks declined, while that of 10 banks went up. Interest income of these banks has increased by a hefty 21.46 per cent.

However, that has been more than neutralised as interest expense on borrowings increased at a higher pace of 23.94 per cent. This clipped the growth in net interest income, which rose around 18.22 per cent.

The interest income growth indicates that banks have been able to lend more , while the higher interest outgo signifies that banks found it difficult to raise funds at a lower rate.

The growth in interest income at 21.46 per cent for the quarter under review has been highest in the current financial year. Interest income rose by 16.25 per cent during the first quarter ended June 2005 and 14.56 per cent during the second quarter ended September 2005.

The higher growth in interest income for the quarter ended December 2005, attributed to 34.9 per cent rise in interest from advances.

Interest income from advances had risen by 32.96 per cent during the September 2005 quarter and 28.06 per cent during the June 2005 quarter.

Other income, which shored up the net profit of banks in 2004-05, has declined in two of the last three quarters. Other income declined by 1.62 per cent during the quarter under review.

It was up by a modest 6.97 per cent during the quarter ended September 2005 and had declined by 5.76 per cent during the quarter ended June 2005.

Our Banking Bureau adds: Bankers attributed the fall in provisioning to a high base effect. Banks had transferred huge chunks of their government securities portfolio from available for sale (AFS) and held for trading (HFT) to hold till maturity (HTM) category in 2004-05. Consequently, most banks had to take a hit in their net profits in the second and third quarters of 2004-05.

For ICICI Bank, provisions rose manifold in the October-December 2005 quarter to Rs 395.07 crore from Rs 108.23 crore a year earlier.

Provisioning against government securities for interest accruals aggregated to more than half of the total provisioning, said deputy managing director Kalpana Morparia.