Both private sector Yes Bank Ltd and government-owned IDBI Bank Ltd reported hefty rise in profits for the September quarter but the factors contributing to their earnings were different.
While Yes Bank’s net profit rose 33% riding on a 63% jump in non-interest income, IDBI Bank’s 20% rise in profit was led by a 28% rise in interest income.
Yes Bank’s profit rose to Rs 235 crore from Rs 176.3 crore last year mainly because the bank earned Rs 214 crore in fees by offering trade finance, loan syndication and foreign exchange services. The profit was higher than news agency Bloomberg’s estimate of Rs 217 crore.
The bank took a conscious decision to “debunk and deconstruct” loans because of heightened uncertainties in some sectors, chief financial officer Rajat Monga said.
“We decided not to increase exposure in some sectors like telecom,” Monga said. “Our telecom exposure has fallen from 5% of the book in the quarter ended June to 3% now.”
Yes Bank’s total advances grew by just 12.7% to Rs 34,194 crore much lower than the 21% growth the banking system has seen year-on-year.
Growth in advances in September quarter over June quarter was even lower at just 3.3%, but Monga said it was better than a decline of 4% seen in June versus March.
“We will catch up on loan growth in the rest of the financial year because companies will need loans to buy inventory because of inflation. There is also a large opportunity to refinance loans from other banks,” he said.
IDBI Bank said profit rose to Rs 515.91 crore from Rs 429.10 crore in the same quarter last year as interest earnings increased to Rs 5,812 crore from Rs 4,534 crore. The profit beat a Bloomberg estimate of Rs 414 crore.
The bank’s other income, however, fell to Rs 479.10 crore from Rs 535.15 crore.
IDBI Bank’s growth was driven by a 20% rise in advances to Rs 1.55 trillion from Rs 1.30 trillion last year.
IDBI Bank’s stock lost 2.06% to close at Rs 104.8, while Yes Bank shares lost 1.79% to close at Rs 284.8. The Bombay Stock Exchange’s benchmark 30-share Sensex lost 0.87% to close at 16,936.89 points.
Yes Bank’s results were better than his firm’s expectations of Rs 6.3 earnings per share (EPS), said Jigar Shah, analyst at Kim Eng Securities Pvt. Ltd.
“They have delivered Rs 6.7 EPS which is good and we continue to like the stock. The concerns are for the whole industry and not particular to Yes Bank if growth slows,” Shah said. “We have a buy rating with a target of Rs 400 on the stock for financial year 2011-12.”
With only 11% low-cost current and savings account (Casa) deposits, Yes Bank is dependent on high-cost wholesale deposits for funding needs.
The bank’s cost of funds increased to 8.5% from 6.5% last year.
IDBI Bank’s Casa, too, is low compared with its public sector peers, but it has risen from 15% to 19%. The bank’s profit growth was led by its corporate and wholesale banking division, which made a profit of Rs 642 crore, up from Rs 427 crore last year.
Profit for retail banking, however, dropped 84% to Rs 20.47 crore from Rs.127.47 crore last year.