Banks face contrasting Q2 numbers

The net profits of banks in the second quarter of 2005-06 are estimated to range between a decline of 71 per cent and a growth of 326 per cent year-on-year, according to a results preview by ICICI Securities.

Corporation Bank's profit after tax is likely to be more than quadruple, year-on-year to Rs 116.88 crore from Rs 27.4 crore a year ago, as the provisions are estimated to be nearly a third of that in the same quarter of 2004-05.

Union Bank will have an exceptional quarter due to a large loss, on account of transfer of securities, to held-to-maturity (HTM), with net profit expected to fall by 71.2 per cent to Rs 60.7 crore in the July-September 2005 quarter.

The bank's provisions are expected to jump nearly five-fold year-on-year due to a loss of Rs 240 crore booked on transfer of securities to HTM.

ICICI Securities said that the sectors' fundamentals had grown from strength to strength during the second quarter of 2005-06, with high levels of loan growth being sustained and interest rates remaining stable. Margin trends across banks are not uniform, but on an average they are stable.

It said, results will reflect strong core business performance with banks reporting figures of loan growth in the range of 20-45 per cent. The fortnightly data from the

Reserve Bank of India (RBI) indicates the overall loan growth at 29 per cent, excluding IDBI Bank.

Retail, farm credit and oil companies' borrowings would be the key drivers of credit growth in the second quarter. The momentum of fee growth of 2004-05 is likely to continue.

Margin trends are not uniform, but generally stable. On a quarter-on-quarter basis, ICICI Securities expects margins to be generally stable though most would tend to fall year-on-year on high bases. The pressure appears to be more from investment yields rather than the advances yields or cost of funds.

Competition on the credit front has ebbed a bit, as indicated by some selective increases in rates for certain product categories.

Banks' core incomes are expected to continue their good performance. The declines in profits projected, are mainly for those cases where treasury profits in the second quarter of last year were high and declining thereafter.

The sector is increasingly progressing towards less volatile profitability; quality of earnings is getting better as core incomes rise, treasury profits become negligible and treasury concerns abate.