Mumbai: State-run Canara Bank is likely to post a 20-25% on-year rise in net profit in October-December, thought it may be flat over the July-Sept quarter due to marginally lower treasury income, a top official said on Monday.
In the September quarter, treasury income was Rs433 crore, but it will be lesser in the December quarter, leading to a flat net profit growth, A C Mahajan, chairman and managing director, told Reuters told on the sidelines of a conference organised by Indian Banks’ Association and State Bank of India.
“The lower treasury gains will be offset by good net interest income and so we will be able to maintain our profit,” he said.
The lender’s profit for the December quarter would rise mostly on the back of 15-20% net interest income growth coming mainly from infrastructure sector, he said.
The bank’s home loan portfolio has also risen after it directly lent to home buyers instead of refinancing it through institutions like HDFC and Housing and Urban Development Corp.
“Our cost of deposits has come down because interest rates have come down over last year,” he said adding its cost of deposits in December quarter has fallen to 6.23% from 6.87% a year ago.
“We are showing increase in profitability on basis of volumes so that our net interest margin remains intact or rises slightly,” Mahajan said.
The bank hopes to recover Rs1,100-1,200 crore in 2009-10 and has already recovered Rs900 crore of bad assets since April.
“The key to increase provision coverage is to recover more and more written-off assets which are fully provided,” he said.
The Reserve Bank of India has asked all banks to increase their provision coverage ratio to 70% by September 2010.
Canara Bank’s provision coverage ratio was the lowest at around 37% prior to the new norm of the central bank.
The bank has been able to increase its provision coverage ratio to 75% by writing back some of the assets which were written off from the bank’s books but not from the branches.
Mahajan expects to maintain the bank’s net interest margin at around 2.7-2.8% in December quarter as high cost bulk deposits got repriced.