Business OpportunitiesBanks' net interest margins dip in Q4
Public sector banks do far better than private ones.
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The fourth quarter results of Indian banks indicate pressure on margins due to continued high cost of deposits, decline in lending and low interest rate products floated mostly by public sector banks (PSBs).
The banks reduced their prime lending rates by 50-150 basis points (bps) from the peak levels seen in October, while deposit rates were lower by up to 100 basis points.
Deposits grew by 9 per cent in the fourth quarter, compared to a 37.8 per cent decline in lending. No wonder interest income of the 33 private and public sector banks studied here rose by 23.7 per cent while interest on borrowing increased at higher pace of 27.9 per cent.
But, the high cost of borrowings resulted in a 14 per cent rise in net interest margins, the slowest growth in the past four quarters.
A weak incremental credit-deposit ratio (47.7 per cent as against 83.7 per cent a year earlier) and a larger proportion of funds parked in the low-yield reverse repo mechanism have compressed net interest income (NII). This also led to a sequential drop in net interest margins (NIM) of the banks.
However, declining provisions for non-performing assets and treasury income helped banks to post a net profit growth of 29.7 per cent, compared to 41.7 per cent in the third quarter.
On non-interest income, the fee income of the banks surged up by 35 per cent due to the distribution of various corporate and third-party products.
The treasury operations of banks also benefited from softening of the interest rate, as the RBI reduced cash reserve ratio (CRR), repo and reverse repo rates.
Non-tax provisions and contingencies declined by 2.46 per cent to Rs 7,405 crore in the quarter ended March 2009 and accounted for 32.3 per cent of NII.
What makes the fourth-quarter performance noteworthy is the performance of public-sector banks, which have done much better than their private-sector counterparts on a cumulative basis.
The net profits of public-sector banks surged by almost 40 per cent, compared with only two per cent growth reported by private banks.
Four banks — Dhanalakshmi, Bank of Baroda, IndusInd and Vijaya — have more than doubled their net profits.
HIGH COST DEPOSITS
Quarter ended March 2009
(Rs crore)
Private banks
Public banks
Aggregate
Mar-09
% chg*
Mar-09
% chg*
Mar-09
% chg*
Interest Earned
17,548
16.35
65,193
25.83
82,741
23.69
Other Income
4,155
8.06
13,532
45.41
17,687
34.49
Total Income
21,703
14.67
78,725
28.81
100,428
25.47
Interest Expended
11,804
18.24
48,041
30.46
59,845
27.85
Net Interest Income
5,745
12.66
17,152
14.46
22,897
14.01
Operating Profit
5,444
21.06
17,572
24.01
23,015
23.30
Net Profit
2,211
1.57
8,786
39.43
10,997
29.71
* over March 2008
State-run Oriental Bank of Commerce posted a net profit of Rs 196.8 crore in the quarter ended March 31, while it had incurred a net loss Rs 99.4 crore in the same quarter a year earlier. India’s largest private sector lender, ICICI Bank, reported a 35.3 per cent fall in its net profit.
Central Bank of India, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and Union Bank of India also reported a decline in net profit during the quarter.