Net interest income growth still remains subdued.
The treasury and fee-based income drove the bottom lines of most of the public sector banks that announced their earnings for the quarter ended September 30 on Monday. This came as core income remained subdued for most of them.
Bangalore-based Canara Bank, which has reported a 72 per cent year-on-year growth in its profit at Rs 910 crore for the second quarter, has seen 163.6 per cent growth in its other income, while its net interest income (NII) growth has been a mere 14.3 per cent at Rs 1,314 crore.
Similarly, Union Bank of India, which has seen its NII growth dipping by 11.20 per cent, reported 40 per cent rise in profit due to a robust growth in core fee and treasury income. While the Mumbai-based lender’s core fee income rose by 39 per cent to Rs 217 crore, profit from sale of investment was Rs 218 crore as compared to a loss of Rs 36 crore in the same period of the previous year.
“NII was the lowest in June, but since then it has started moving up. With improvement in credit offtake in the remaining part of the financial year, NII will be boosted,” said MV Nair, chairman and managing director of Union Bank.
The bank also expects its net interest margin (NIM) to improve in the remaining two quarters. The bank’s NIM for the second quarter was at 2.28 per cent, improved by 6 basis points sequentially, and is expected to further increase to 2.6 per cent in the third quarter and to 2.8 per cent in the fourth quarter. For 2009-10, Union Bank expected its NIM to be 2.6 per cent on a conservative estimate, Nair said.
Delhi-based Oriental Bank of Commerce’s net profit growth of 14 per cent at Rs 271 crore was also mainly driven by a 46 per cent growth in other income at Rs 305 crore. The bank’s provisioning was lower in the quarter ended September at Rs 55 crore as against Rs 187 crore during the same period of the previous year.
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Dena Bank’s net profit growth of 21 per cent at Rs 125 crore was mainly due to recovery of bad loans and 84 per cent growth in non-interest income. The bank’s profit on sale of investment was Rs 118 crore in the second quarter as against a loss of Rs 7 crore in the same period of the previous year. In addition, the bank has to make only Rs 1.44 crore provision during the quarter due to lower deterioration of bad assets and lower provisioning requirement for standard assets.
Another Mumbai-based lender, IDBI Bank, however, saw healthy NII growth of 267 per cent at Rs 472 crore, albeit on a lower base. IDBI’s fee income growth was 99 per cent at Rs 390 crore. Both core and non-core income helped the bank report 56 per cent increase in its net profit at Rs 254 crore.
Going ahead, most of the banks see credit growth to pick up, but may be less than the Reserve Bank of India’s growth projection of 20 per cent for 2009-10.
“Overall loan growth for the industry was earlier expected to be around 20 per cent but now, it seems, it may be 14-15 per cent. Similarly, we have revised downward our loan growth target to 18 per cent from 25 per cent envisaged earlier,” Union Bank’s Nair said.
Union Bank also fears bad loans to rise in the current financial year due to the huge restructuring exercise undertaken by the banking sector. It now projects 2 per cent gross NPA by the end of 2009-10, revised upward from 1.75 per cent. As on end-September, the bank’s gross NPA was 1.93 per cent.