Andhra Bank head foresees 20% rise in profit

The rise in government bond yields may, however, depress treasury income by Rs 200 crore, he said.

"Other income, net of treasury is likely to show a significant rise year-on-year," Narayanasami said. As a proportion of interest income, fee-based income is poised to rise to 26 per cent, from 22 per cent earlier, he said.

Andhra Bank is likely to announce its earnings for January-March and 2004-05 on Apr. 27. Andhra Bank's business in 2004-05, including advances and deposits, may top Rs 45,000 crore, with credit growth of around 33 per cent and deposit growth of 17 per cent, said Narayanasami.

"All our priority sector targets have been met," he said.

"There has been a vertical drop in non-performing assets," he said.

The bank's non-performing assets have decreased to Rs 450 crore as of March 31 from Rs 615 crore a year ago. Gross NPAs constitute nearly 2.5 per cent of total advances, while net NPAs at around 0.25 per cent is among the lowest in the industry, he said.

Recoveries from technically written-off accounts during the year are expected to be around Rs 60 crore. These accounts had a 100 per cent provision cover.

Andhra Bank is likely to take a hit of around Rs 200 crore from treasury operations in 2004-05, Narayanasami said.

The bank had transferred Rs 4,600 crore worth government securities from the available-for-sale portfolio to held-to-maturity in September.

Narayanasami does not see any significant reduction in interest rates over the next two-to-three months, and believes that banks may get hurt if the trend of rising bond yields continues.

The yield on the benchmark 10-year bond has gone up from 6.67 per cent on April 1 to 7.06 per cent today.

"It is difficult for interest rates to come down till June. We hope this (the increase in government bond yields) is only a temporary aberration. No bank has a yield-to-maturity of more than 7.5 per cent," he said.

Andhra Bank is looking at a growth of around 25 per cent in its loan book in the current financial year (2005-06), with a continued thrust on fee-based income, Narayanasami said.

Fee-based income will help step up profitability for the bank, he said.

"Credit to small and medium enterprises, trade, services and logistics companies will be our focus area in the coming year," he said.

Narayanasami believes that the small and medium enterprises provide better spreads than top corporates.

The bank's average yield on advances is over 9 per cent, while its cost of funds as of December 31 was around 4.30 per cent.

The bank's capital adequacy ratio at the end of the previous financial year (2004-05) was around 13 per cent.

Narayanasami believes that the bank does not need to raise Tier-I capital (equity infusion) for a period of one more year, based on current trends in credit growth.

Andhra Bank shares closed at Rs 99.30 on the National Stock Exchange today, up 1.48 per cent from Tuesday.