Advances buoy UTI Bank's Q1

UTI Bank, a mid-sized private sector bank, today reported 30 per cent rise in net profit in the first quarter of 2006-07 to Rs 120.55 crore from Rs 92.63 a year earlier, helped by a strong growth in advances portfolio and despite a 33 basis points rise in cost of funds by to 5.45 per cent.

The mid-sized private bank faced a downward pressure on its spread, which saw its net interest margin (NIM) falling to 2.68 per cent in the quarter ended June 30, 2006 from 2.96 per cent in the previous quarter ended March 31, 2006. The NIM was nearly flat year-on-year.

"The downward pressure on spreads has arisen partly on account of the very rapid growth in advances, which led to a larger part of this growth being funded out of term deposits and also because of the increase in interest rates during the quarter (April-june 2006)," the bank said in a statement.

Net interest income grew by 44.66 per cent year-on-year to Rs 321.84 crore during April-June 2006 and its fee and other income increased by 60.65 per cent to Rs 184.55.

The 65 per cent growth in advances and a higher share of demand deposits led to net interest income growth. Operating profit during the quarter was Rs 307.18 crore, up from Rs 203.48 a year earlier.

P J Nayak, chairman, said, "Advances grew as the bank had decided to rebalance the investment portfolio which grew by a modest 26 per cent."

"As liabilities have a shorter average duration, they reprice faster than assets and as the growth of the bank becomes more modest and interest rates plateau, the NIM can be expected to again rise," the bank said in a statement.

Nayak said the sharp rise in advances should not be a concern, as advances cannot grow at this rate and will slow down in the following quarters.

The bank's deposits grew by 36 per cent to Rs 42,094 from Rs 31,020 crore a year earlier. Net NPAs at the end of 2006-07 first quarter stood at 0.73 per cent.

Its capital adequacy ratio of fell to 10.28 per cent from 11.74 per cent as on March 31, 2006. The bank intends to augment its tier-I capital in the current year.

The bank made a higher provisioning of Rs 7.29 crore owing to an increase in general provisioning to 0.55 per cent from 0.40 per cent on commercial real estate loans, residential housing loans beyond Rs 20 lakhs, personal loans and loans to capital market.