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PNB, Union Bank, BoB profits take a hit from losses on bonds

PNB, Union Bank, BoB profits take a hit from losses on bonds
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First Published: Wed, Jan 27 2010. 11 10 PM IST

Marginal growth: PNB chairman and managing director K.R. Kamath. The bank’s interest income in Q3 grew 2.64% to Rs4,194 crore. Rajkumar / Mint
Marginal growth: PNB chairman and managing director K.R. Kamath. The bank’s interest income in Q3 grew 2.64% to Rs4,194 crore. Rajkumar / Mint
Updated: Wed, Jan 27 2010. 11 10 PM IST
New Delhi / Mumbai: Three state-owned banks on Wednesday reported third-quarter profits that were crimped by losses on their investment in government bonds, marking a reversal of the trend from a year earlier.
Marginal growth: PNB chairman and managing director K.R. Kamath. The bank’s interest income in Q3 grew 2.64% to Rs4,194 crore. Rajkumar / Mint
Punjab National Bank (PNB) posted almost flat net profit in the three months ended December compared with the year-ago period, and Union Bank of India reported a decline. Bank of Baroda bucked the trend, posting 17.5% growth in net profit, benefiting from core banking operations and fee income that countered the fall in treasury income.
PNB, the country’s second largest public sector lender, said net profit rose 0.5% from a year earlier to Rs1,011.31 crore in the fiscal third quarter. Union Bank’s profit dropped 20.42% to Rs534 crore. Bank of Baroda’s profit rose to Rs832.49 crore.
Public sector banks, the largest buyers of government debt, were hit by a sharp increase in bond yields during the quarter to December. Yields on the 10-year bond rose from 7.19% at end-September to 7.66% at end-December.
Bond yields and prices move in opposite directions. As yields rise, prices of bonds fall, leading to losses for the banks. In the same quarter in the previous year, banks reaped handsome profits on their treasury operations as an uncertain economic scenario forced investors to invest in bonds, leading prices to rally.
The banks unveiled their earnings two days before the Reserve Bank of India announces its quarterly monetary policy review, which is expected to raise the cash reserve ratio, or proportion of deposits that banks must maintain with the central bank, as it moves to cool inflation. That could be a precursor to an interest rate increase that could push bond yields further up.
A break-up of PNB’s third-quarter numbers showed the bank’s treasury profit had declined to Rs157 crore, from Rs341 crore last year. Bank of Baroda’s income from bond trading fell to Rs139.30 crore, from Rs346.79 crore.
Union Bank’s profit dropped mainly because in the year-ago quarter, the bank had written back to its profit Rs291 crore of provisions on account of depreciation in investment.
“The main reason (for the muted profits) is treasury—it can be overcome and (is) not a big concern,” said Hatim Brochwala, an analyst at Khandwala Securities Ltd.
PNB’s interest income in the third quarter grew 2.64% to Rs4,194 crore. The interest paid out by the bank in the same period fell by 4.53% to Rs3,176 crore.
Bank of Baroda, the best performer among public sector banks so far in the third quarter in terms of profit, saw its fee income rising 27% to Rs356 crore in the quarter; interest income rose 1.68% to Rs4,176.97 crore. Union Bank’s interest income rose 1.04% to Rs3,293 crore.
PNB managed to keep its net interest margin (NIM), a measure of the difference between rates on advances and borrowings, at 3.84%, compared with 3.85% a year earlier.
Bank of Baroda’s NIM fell to 3.40% from 3.61% a year ago due to “aggressive reduction in lending rates, while credit pickup remained less”, said chairman and managing director M.D. Mallya. Union Bank’s NIM fell sharply to 2.71% from 3.55% a year ago.
“Margins which banks have reported this quarter are unsustainable beyond one quarter or two at best. The banking environment should get tougher,” said J. Ganeshram, banking analyst at Spark Capital Advisors (India) Pvt. Ltd.
The Bankex, the banking index of the Bombay Stock Exchange, fell 4.19% to close at 9,296.34 points at the close on Wednesday, on a day when the benchmark Sensex fell 2.92% to 16,289.82. PNB fell 4.54% to close at Rs860, Bank of Baroda declined 2.2% to Rs522.45 and Union Bank of India dropped 1.16% to Rs263.
sanjiv.s@livemint.com
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First Published: Wed, Jan 27 2010. 11 10 PM IST