Other income, retail loan growth boost private banks' profit

Concerns on asset quality has stabilised

Strong other income and robust growth in the retail (individual) book portfolio helped private sector banks report good earnings growth in the April-June quarter. Most banks met Street estimates and concerns on asset quality also stabilised, as the spikes in non-performing assets (NPAs) were along expected lines.

Most lenders saw a rise in other income, which includes fees and commissions. YES Bank and IndusInd Bank’s other income grew 65 per cent and 28 per cent, respectively.

Net interest income, the difference between interest earned and expended, for most banks also recorded handsome growth. This was mainly led by the growth in the retail book.
 

At a time when credit demand has been hovering at 9-10 per cent, private banks saw their net interest income improve 15 per cent.

On asset quality, banks witnessed an increase in NPAs. However, this was along  expected lines.

Analysts say the pressure on asset quality might continue for a couple of quarters, especially for Axis and ICICI. As a result, these two might continue to see some pressure on margins.

This increase in bad loans was not only led by corporate groups; some also saw higher slippages from the small and medium enterprises (SME) book.

“We may continue to pull back bad loans in the SME segment for one more quarter. We have also seen a slight increase in NPA in agriculture and some increase in bad loans in the retail segment, specifically personal loan,” said Paresh Sukthankar, deputy managing director, HDFC Bank.

As a result of the increase in NPAs, provisioning also rose in the quarter.

HDFC Bank’s increased 31 per cent, while Axis Bank saw an increase of 81 per cent in its provisioning.

“Some smaller banks such as IndusInd, YES Bank and Federal Bank have reported a better set of numbers compared to their larger peers. But, the good thing was there were no surprises like last quarter, when we saw Axis and ICICI come out with a bad loans watchlist,” said an analyst with a foreign brokerage house.

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PRIVATE BANKS' TRUMP CARD

• Most banks reported earnings in line with estimate
  

 

Profits boosted by other income, led by fee growth and treasury gains
 

Loan growth in retail portfolio helped net interest income
 

ICICI & Axis likely to see pressure on asset quality in the coming quarters
 

Some reported an increase in bad loan in SME segment, apart from large companies