Mumbai: State-run lender Bank of India posted a 15% rise in net profit in the March quarter on strong credit growth but investors dumped the stock on higher provision costs for pension and gratuity, analysts said.
Shares of the lender, which the market values at $5.6 billion, fell as much as 8.75% after the results, before ending down 8% in a weak Mumbai market.
Other mid-cap Indian banks have also posted disappointing results so far, prompting analysts to advise avoiding them.
Bank of India posted a net profit of Rs494 crore in January-March compared with Rs428 crore a year ago. Net interest income was Rs2,308 crore in the period compared with Rs1,555 crore last year.
“We were expecting it (profit) around Rs600 crore but it’s lower because of higher pension and gratuity costs. But on other parameters they have not done badly. I won’t be a seller of this bank,” Rahul Jain, analyst with HDFC Securities, said.
Provisionsing for pensions and gratuity came to Rs1,570 crore compared with Rs43o crore a year ago.
Analysts are very downbeat on mid-cap banks after disappointing March quarter results amid accelerating inflation fears leading to further monetary tightening and expensive valuations.
Banks’ margins are expected to be under presser on higher interest rates while quality of assets is also a concern, analysts said.
“Interest rates are high. There will be pressure on margins. Our idea is to maintain it at current levels,” N Seshadri, executive director, told reporters. Its net interest margin in the March quarter was 2.9%.
Bank of India’s net non-performing assets at end-March grew to 0.91% from 0.8% in the December quarter.
The bank expects its advances growth to slow to 21% and deposits growth to 20% in the current financial year, its chairman and managing director Alok Kumar Misra told reporters at an earnings press conference.
In FY11, the bank saw domestic credit growth of 22.16% and deposit growth of 28.68%.
It also expects its low cost current accounts savings accounts deposit to rise to 35% of total deposit from 29.18% now.
“Also, we’ll have to pass on some of the increase in interest cost to our customers and we’ll focus more on non-interest income,” Seshadri added.