Mumbai: State-run Bank of India’s September quarter net profit fell more than a fifth, lagging forecast, on higher provisions to cover worsening asset quality, sending shares down 6%.
The lender, in which the government owns nearly 66% stake, said on Tuesday its net profit for the quarter was Rs 490 crore compared with Rs 620 crore a year ago. Net interest income rose about 7% to Rs 1,900 crore.
A Reuters poll of brokerages had estimated net profit at Rs 640 crore.
Bank of India is amongst a few major lenders, including Union Bank and Canara Bank, to have posted a drop in quarterly profit.
“The banking sector has been impacted by a multitude of factors - high interest rates, deceleration in credit growth because of slowdown in industrial activity,” Alok Misra, chairman and managing director, told reporters.
Credit at Indian banks has been growing at a slower rate than deposits, with surging interest rates in Asia’s second-fastest growing major economy curbing spending on big-ticket purchases like cars and housing.
The Reserve Bank of India, which expects credit to grow by 18% in the full fiscal year, raised interest rates last month for the 13th time in a tightening cycle that began in early 2010 to fight persistently high inflation.
“Our net profit declined, constrained by overall provisions due to increase in NPA. Going forward, we will see more recoveries and lower provisions,” Misra added.
Bank of India said its gross non-performing assets rose to 3.02% in the quarter from 2.64% a year ago, leading to a 39% increase in provisions.
It had slippages of Rs 4500 crore in the period compared with Rs 1,440 crore a year ago.
While the lender did not have any slippages in power sector this quarter, certain state electricity boards have requested the bank to restructure accounts, executive director B. A. Prabhakar told reporters.
Larger rival Punjab National Bank has given fresh long-term loans to pay off short-term debt to help financially troubled electricity distributors while Indian Overseas Bank said it may also consider a restructuring.
Other sectors under stress are textiles, sugar and construction, Prabhakar added.
“Results are disappointing, undoubtedly, because of very high slippages. One will actually have to get into the nitty gritties of why such high slippages are happening in one bank and not in other banks,” sector analyst at a local brokerage said.
“Next 6 months, the focus will be on recoveries and controlling slippages, so growth will take a back seat. They will concentrate only on asset quality in my view,” he added.
Earlier, mid-sized lenders posted strong quarterly profits, mostly exceeding street estimates on higher net interest income and better asset quality.
Investors are keenly watching numbers from State Bank of India, the country’s top lender, which is expected to report on Wednesday.
Bank of India’s net interest margin shrunk to 2.44% from 2.81% a year ago on higher costs of deposits.
“I’m not so sure if things would get better from here. I’m not that positive, it’s possible there may not be a downside but I don’t see a reason why any investor will be excited about a BoI right now,” said Krishnan ASV, analyst with Ambit Capital.
Shares of the lender, valued at $3.8 billion, are down more than 14% so far this year. On Tuesday, they closed about 4% lower at Rs 327.8 in a flat Mumbai market.