The banking sector seems to be gaining momentum, if the April-June quarter net interest income (NII) and net profit numbers of 39 listed lenders are anything to go by.
A 20 per cent-plus credit growth, led by state-owned banks, and over 100 basis points decline in cost of deposits, saw listed banks reporting one of the best quarterly growth in NII at 46.5 per cent. Net profit grew at a relatively slower pace of 26.45 per cent, due to a 14.5 per cent decline in other income and a 39 per cent rise in provisions and contingencies.
State-owned banks outperformed their counterparts in the private sector with NII growth of 55.1 per cent, but slipped marginally in terms net profit growth, which was 25.4 per cent. NII of private banks rose 26.7 per cent, while net profit grew 29.3 per cent, mostly due to lower provisions for bad debt compared to public sector banks (PSBs). Other income declined by more than 10 per cent for both, which indicated a decline in trading profit, profit on sale of investment and retail fee income. However, PSBs were able to improve operating margins by 217 basis points over private banks, mostly due to low-cost deposits.
| GROWING STRONG QUARTER-WISE GROWTH IN NET PROFIT (%) | ||||
| Bank | Sept ’09 | Dec ’09 | Mar ’10 | Jun ’10 |
| Kotak Mah. Bank | 163.02 | 100.17 | 97.43 | 106.95 |
| St Bk of Hyderabad | 26.79 | 8.93 | 49.24 | 82.55 |
| Canara Bank | 71.98 | 50.05 | -30.01 | 82.48 |
| Yes Bank | 75.59 | 19.04 | 74.80 | 56.26 |
| United Bank (I) | 1268.77 | -76.02 | -65.72 | 53.49 |
| IDBI Bank | 56.17 | 28.98 | 1.51 | 46.01 |
| UCO Bank | 38.40 | 43.23 | 270.32 | 45.49 |
| Oriental Bank | 14.31 | 14.77 | 75.33 | 41.14 |
| City Union Bank | 21.51 | 26.52 | 33.27 | 40.63 |
| IndusInd Bank | 131.19 | 95.38 | 93.90 | 37.05 |
| Union Bank (I) | 39.74 | -20.49 | 27.62 | 36.01 |
| St Bk of Mysore | 9.41 | -22.61 | 148.05 | 35.53 |
| HDFC Bank | 30.21 | 31.65 | 32.61 | 33.92 |
| Axis Bank | 31.95 | 30.97 | 31.55 | 32.00 |
| Punjab Natl.Bank | 31.10 | 0.55 | 31.13 | 28.39 |
| Total for 39 banks | 23.32 | -4.07 | 16.23 | 26.45 |
| Note: Standalone basis Source: Capitaline | ||||
State Bank of India (SBI) will declare its quarterly results on August 12 and so has not been included in the sample. Analysts expect SBI to post a 5-10 per cent rise in net profit for the June quarter. If so, the net profit growth of listed banks may come down to 22 per cent from over 26 per cent.
As banks shifted to a new regime of paying interest on daily balances on savings deposits during the June quarter, the cost of deposits increased 15-20 basis points compared to the March quarter of the previous financial year.
Operating margins declined around 150 basis points for PSBs and around 125 basis points for private banks over the preceding quarter, as banks saw a 100-80 basis points decline in yield on advances.
Margins are up sharply for PSBs, which reported lower NIMs (net interest margins) in the first quarter of the previous year because of higher borrowing costs. The PSBs lagged in net profit growth, mainly due to the base effect of lower provisions in the June 2009 quarter.
The decline in other income limited net profit growth in the first quarter. The 39 listed banks together reported a 26.5 per cent rise in net profit during the June quarter, despite robust NII and decline in cost of deposits.
Almost all PSBs — including Allahabad Bank, Bank of Baroda, Corporation Bank, Dena Bank, Oriental Bank of Commerce, Punjab National Bank, Union Bank and Vijaya Bank — reported higher growth in NII, but a comparative lower rise in net profit, on account higher provisions. The lower provisions by private banks such as HDFC Bank and ICICI Bank lifted profit growth more than the NII growth.
