Net interest margins under pressure due to moderate income from advances.
State Bank of India, India’s largest bank, saw its net income grow by just 4.30 per cent in the first quarter of the current financial year. But other income rose by 48.46 per cent in the same period, boosting the bank’s profits by 42.03 per cent on a standalone basis. The bank’s operating profit was down 7.28 per cent.
That’s the central theme of banks’ performance in the first quarter. Gains from treasury, fees and income from written-off accounts have made a robust contribution to the bottom line of banks.
They have also benefited from lesser provisioning compared to the year-ago period, when the value of the equities in their portfolio was sharply down.
Net interest margins of almost all banks were under pressure due to moderation in income from advances — an outcome of the slowdown in credit offtake and cut in lending rates. The legacy effect of a rise in interest costs also played a spoilsport, analysts said.
Net interest income (NII) in the first quarter grew in the range of 1.5-14 per cent (Axis Bank was the only exception with 29 per cent growth) compared to an average 20 per cent growth seen before the slowdown set in around September last year.
For ICICI Bank, the largest private sector bank, other income rose 35.9 per cent to Rs 2,090 crore, mainly on account of gains from treasury activity. Its treasury income was Rs 714 crore in the quarter as against a loss of Rs 594 crore a year ago. The bank’s fee income, however, declined due to the slowdown in corporate activity and distribution of retail savings and investment products, the bank said.
“Treasury gains in this quarter have been primarily on account of gains from government bond and equity-related capital gains,” ICICI Bank Chief Financial Officer N S Kannan said.
HDFC Bank’s non-interest revenue registered a growth of 75.9 per cent to Rs 1,043.7 crore in April-June 2009 from Rs 593.4 crore a year ago. The largest contributor to other income for the quarter was fees and commissions, growing 27 per cent to Rs 649.3 crore.
Revenue from foreign exchange and derivatives was Rs 137.8 crore as against Rs 157.4 crore a year ago. The profit on revaluation/ sale of investments stood at of Rs 256 crore as against a loss of Rs 77.6 crore for the quarter ended June 30, 2008.
Axis Bank, another private sector bank, reported a 17 per cent growth in fees to Rs 626.63 crore in the quarter compared to Rs 537.27 crore a year ago with contributions from all major businesses. The bank generated Rs 326.07 crore in trading profit compared to Rs 57.31 crore a year ago.
In SBI’s case, the profit on sale and revaluation of investments (equity and bonds) grew 218 per cent to Rs 708.33 crore from Rs 222.83 crore.
“The equity market moved up substantially in the April-June quarter, and we have used the opportunity to book profits by churning our equity investments,” said a senior SBI official. The BSE Sensex gained almost 50 per cent to 14,494 at June-end.
SBI’s income from foreign exchange trading rose to Rs 470.38 crore in the first quarter from Rs 169.19 crore a year ago. “The volumes were large in our proprietary trading, and buying and selling to clients in the reporting quarter,” official added.
