Profit dips after 14 quarters for 36 listed banks

After a gap of 14 quarters, 36 listed commercial banks recorded a 6.58 per cent decline in net profits in the second quarter of 2004-2005 (July-September 2004). The last time these banks posted a dip in net profits was in March 2001.

In the first quarter (April-June) of 2004-2005, however, their net profits were up 19 per cent. They notched up a modest 5.1 per cent net profit growth rate in the first half of the year.

Net profits dipped on account of a drastic fall in treasury income and profits. The treasury profits of 36 listed banks in the first half of the year went down sharply by 43.9 per cent "" or Rs 4,560 crore. This is a reversal of the trend witnessed over the last few years. In the first half of 2003-2004, these banks' treasury profits rose by Rs 3,853 crore.

If treasury income crashed, it is because yields on government securities have started moving northwards and gilt prices southwards (the yields on bonds and bond prices move in opposite directions), drawing down the curtain on the low interest regime.

The yield on the 10- year benchmark bond, which had gone down to below five per cent in October last year, has now crossed seven per cent.

Only five banks "" Allahabad Bank, Indian Overseas Bank, Uco Bank, Union Bank of India and State Bank of India (SBI) "" made treasury profits; Bank of Rajasthan, Federal Bank, Ing Vysya Bank, Bank of Punjab, HDFC Bank, IDBI Bank and Kotak Mahindra Bank posted a loss. All other banks posted a decline in treasury profits of between 10 per cent and 90 per cent.

Only one listed bank "" Jammu & Kashmir Bank "" is not included in this study as its treasury income data are not available. The reversal began in the first quarter of the year, with government bond prices, as indicated by I-bex index, dipping by almost 400 basis points (one basis point is one hundredth of a per cent). Consequently, the treasury profits of the 36 listed banks declined in the first quarter by Rs 2,491 crore or by 42.6 per cent.

Although government bond prices fell by just 100 basis points in the second quarter of the year, the low debt market volumes hit banks hard. The collective treasury profits of the listed banks in the second quarter declined by Rs 2,070 crore or by 45.9 per cent.

The small growth in net profits in the first half is due to the lower provisioning by banks for provisions and contingencies. Provisioning on this count declined by 21.4 per cent or by Rs 1,700 crore in the first half of the year.

Thanks to lower provisioning, SBI, Canara Bank, ICICI Bank, Indian Overseas bank, Oriental Bank of Commerce, Punjab National Bank (PNB) and UTI Bank reported net profit growth in the first half of the year.

SBI, which posted a 13.3 per cent rise in first-half profits, lowered its provisions and contingencies by Rs 1,217 crore. PNB's net profit growth of 33.3 per cent is due to the lower provisioning of Rs 260 crore. OBC's provisioning was down Rs 258 crore, while its first-half net profits were up 29.6 per cent.

ICICI Bank's net profit growth of 17.7 per cent, too, was due in some measure to lower provisioning for contingencies. Of the 36 listed banks studied here, the net profits of 17 banks declined, those of eight banks rose by a single digit, while those of 11 banks climbed up by over 10 per cent each.