No 'other' now

Days of easy money for the banking sector are over

Third-quarter banking sector results were supposed to provide the answer to the question whether lower profits from sale of investments will be offset by lower provisions.

Banks have already cleaned up their balance sheets substantially by utilising the handsome profits that they made from the sale of gilts.

Their need for further provisioning, therefore, has come down. Unfortunately, this line of reasoning takes a knock from the fact that banks have to shift to a 90-day NPA norm by the end of this fiscal.

Is this what has happened with Corporation Bank, which saw its net profits decline to Rs 113.27 crore, compared with Rs 151.81 crore in Q3 last year?

What went wrong? Profit on sale of investments declined, as expected, from Rs 102.57 crore to Rs 45.20 crore. That 56 per cent drop pulled down total income despite modest gains in interest income and dividend on shares.

Although net interest income went up by Rs 31.66 crore, that wasn't enough to prevent gross profit from falling 12.4 per cent to Rs 235.62 crore.

The trouble was that this decline was reinforced by the rise in provisioning for bad debts (from Rs 45 crore in Q3 2002 to Rs 58.75 crore in Q3 2003) and provision for investment depreciation, which too rose by Rs 14 crore. The upshot"�a decline in net profit by 25.4 per cent.

Now that the bank has complied with the 90-day norm, incremental provisions going forward should no longer be so high.

But then, bad debt provisions in Q2 amounted to Rs 53.75 crore, merely Rs 5 crore less than the provision made in Q3.

That indicates that the extra provisions on account of the 90-day norm have been hardly significant. Note that total provisions, (including provision for tax) were Rs 122.35 crore in Q3, against Rs 117.28 crore in Q3, 2002, a difference of only Rs 5.07 crore.

In other words, it's not the extra provisions that have made a difference to Corporation Bank's bottomline, but the dramatic fall in profits from sale of investments.

Small wonder, then, that the Bank's chairman says that from now on banks have to boost their loan book if they want to make money.

The message from Corporation Bank's Q3 results is that the days of easy money are over for the banking sector.

Exports boost Jindal Stainless

With demand from China for commodities showing signs of being insatiable, India companies operating in this sector are witnessing a strong upturn in their results.

And the latest commodity company to benefit from booming exports to the Far East is Jindal Stainless which has unveiled a 52 per cent year-on-year jump in net profits to Rs 47.5 crore, for the quarter ended December '03.

In the previous year, stainless steel operations were carried out under Jindal Strips but since then these operations have been transferred to Jindal Stainless.

While exports in Q3FY04 jumped 33 per cent to Rs 245.92 crore, the company has also benefited from the domestic housing construction boom, as stainless steel is widely used in kitchen sinks, doors, window frames and knobs.

This helped the company boost domestic sales by 20 per cent in the last quarter to Rs 390.36 crore.

While demand for the company's products are booming, of growing concern is the rising costs of key inputs like nickel. The price of nickel has jumped 28 per cent to touch $16,500 per tonne last quarter.

Company officials point out that they have taken adequate hedging to prevent sharp escalation in prices of key inputs in the future.

However, it could not prevent an eight per cent jump in raw material costs to Rs 308.05 crore in the December quarter.

Jindal Stainless' operating profit rose 14 per cent to Rs 102.1, but operating margins were under pressure, falling 156 basis points to 16 per cent in the December quarter.

A sharp reduction in interest costs helped boost gross profit to Rs 101.18 crore, a growth of 34 per cent.

However, depreciation was higher by 30 per cent to 30.83 crore, but company officials point out this was because of an upgradation of existing production facilities at Hisar. The upgradation is expected to boost productivity of the facilities.

Going forward, the recent reduction in custom duties on nickel and coal should help the company control raw material costs.

Besides, demand in the domestic market is expected to gain further strength, with the army evaluating the possibility of using stainless steel in construction of several lakh housing units under Project Primrose. The Jindal Stainless scrip has gained smartly by around 47 per cent in less than two months time.

With contributions from Amriteshwar Mathur