Banks' Q1 profits down 12%

Profitability of domestic banks fell for the first time in three-and-a-half years. The aggregate data of 38 public sector and private sector banks showed a 12 per cent decline in net profit in the first quarter of the current fiscal.

In the preceding quarter ended March 2005, the aggregate bottomline of banks was marginally up by a percentage point.

The reason for the poor show by banks in general was the net profit decline of public sector banks (PSBs) for two consecutive quarters. 
 

PRIVATE BANKS STEAL A MARCH
Rs crore	Total of 38 banks		Public banks (20)		Private banks (18)
	Apr-June 05	% chg	Apr-June 05	% chg	Apr-June 05	% chg
Interest Earned	34238.60	15.80	27106.24	13.66	7132.36	24.74
Net interest	14505.64	22.24	11917.28	21.89	2588.36	23.91
Other income	5898.65	-9.89	4024.56	-22.39	1874.09	37.77
Interest expended	19732.96	11.49	15188.96	7.94	4544.00	25.22
Taxation	1633.35	-29.09	1199.47	-38.64	433.88	24.49
Net profit	4202.12	-12.02	3099.32	-19.47	1102.80	18.87

PSBs' net profit declined by 19.5 per cent during the quarter under review and seven per cent in the preceding January-March 2005 quarter. Private sector banks, on the other hand, outperformed their public sector peers by posting 19 per cent rise in their net profit.

The banking sector aggregated a 15.80 per cent rise in interest income from advances, bill discounting, investments, cash balance with the Reserve Bank of India (RBI) and others.

Interest income of 20 PSBs studied here indicated a slower pace of growth of 13.66 per cent as compared to a 24.74 per cent rise in interest income recorded by 18 private sector banks. The PSBs' poor show was attributed to decline in interest income from investments, balance with RBI as well as other income.

Private banks, however, showed a more robust growth of 28.3 per cent in interest on advances and bills, a 21.5 per cent increase in interest on investments, a 18.8 per cent rise in RBI balance and a 37.8 per cent surge in other income.

Interest on borrowings of the 38 banks moved at a slower pace of 11.49 per cent as compared to the growth in interest income that rose by 15.80 per cent.

This indicated that banks are getting better margins on their advances. The PSB continued to get cheap deposits with interest on borrowings going up by 7.94 per cent as compared to a 13.66 per cent rise in interest income.

The private banks, however, spent more on borrowings as their interest expenses increased by 25.22 per cent against interest income growth of 24.74 per cent. The net interest income of 38 bank rose 22.24 per cent following a 224 basis points increase in net interest margins.

The net interest as a percentage to interest income rose to 42.37 per cent in the last quarter (April-June) as compared to 40.13 per cent in the comparative quarter of fiscal 2004.

Net income of PSBs rose by 21.89 per cent as net interest margins were up by 297 basis points to 43.97 per cent. Private banks, though posted 23.91 per cent rise in interest income, their net interest margins fell by 24 basis points to 36.29 per cent.