OBC to review rates by Nov-end

Oriental Bank of Commerce (OBC) will take a decision on raising interest rates by the end of the month, even as it considers reducing exposure to some sectors of the economy, Chairman and Managing Director K N Prithviraj said on Thursday.

"We would review our interest rates by the month-end," Prithviraj said in an interview. The Reserve Bank of India raised the repo rate by 25 basis points in its quarterly policy review on October 31. In addition, the bank will have a relook at its credit portfolio, he said.

"We would have a relook at credit allocation to some sectors, with particular reference to home loans," he said.

In its mid-year review of the credit policy, the RBI had warned about the sharp increase in banks' loan exposure to housing and commercial real estate sectors.

The public sector bank expects to achieve a 27 to 28 per cent year-on-year growth in advances in 2006-07, while deposits are seen growing 21 per cent from a year ago.

The bank's credit disbursal in 2005-06 was Rs 50,200 crore, while deposits stood at Rs 35,550 crore. According to Prithviraj, the bank's profit performance is likely to be better in the second half of the current financial year compared with the first half on improving yield on advances and the efforts towards asset recovery.

Oriental Bank's net profit during April-September stood at Rs 343 crore, a year-on-year growth of 64.5 per cent.

"The hike in lending rates undertaken by the company towards the end of September along with recovery of bad debts should help boost profit performance in the second half," Prithviraj said.

The bank's total non-performing assets stand at Rs 1,840 crore and the bank expects to recover another Rs 140 crore by March-end.

In the first half of the current financial year, the bank had recovered about Rs 507 crore worth of NPAs compared with a recovery of Rs 200 crore last year.

Prithviraj said the pricing action and strong credit growth should enable the bank to close the year with net interest margins of 2.8 per cent, up from 2.5 per cent at the end of the September quarter.

The yield on the benchmark 10-year government paper is likely to be "stable" in the near future, Prithviraj said.

"Oil prices have eased from their previous highs and are expected to remain benign," he said.

The yield on benchmark 10-year paper has fallen 83 bps from a four-and-a-half year high of 8.43 per cent in mid-July.

The bank will take a look at the market conditions to make further write-back in investment depreciation.

In the July-September quarter, the bank had made a write-back of Rs 73.7 crore, mainly on account of depreciation on its mark-to-market investment portfolio due to the sharp rise in 10-year bond yields during the first quarter.