Mumbai: New-generation private sector bank Centurion Bank of Punjab (Centurion BoP) on 24 May 2007 announced a net profit of Rs28.01 crore for the quarter ended 31 March 2007, compared with Rs26.04 crore net profit in the year-ago period. For the financial year 2006-07, the bank posted a 38.25% growth in its net profit to Rs121.38 crore.
Centurion BoP is the last of the commercial banks that form the Bombay Stock Exchange’s (BSE) banking index to announce its financial results. Collectively, 16 banks that represent Bankex, the BSE banking index, have posted a 15.93% rise in their net profits in 2006-07. This is marginally higher than the 14.41% rise in the previous year.
Between April 2006 and now, the Bankex has risen by 50.41%—from 4,972.73 points to 7,479.29. It has outperformed the benchmark Sensex that rose 34.47% during this period, from 10,573.15 points to 14,218.11. This indicates that investor interest in bank stocks has remained high despite the central bank’s measures to tighten money supply and fight inflation through five rounds of interest rate hikes and an increase in banks’ cash reserve ratio.
Bank of Baroda has recorded the highest rise in net profit in 2006-07 at 60.12% to Rs1,123.17 crore. In addition to Centurion BoP, two other new private banks—UTI Bank and HDFC Bank—have registered more than 30% net profit growth in 2006-07. State Bank of India (SBI), Punjab National Bank (PNB), Oriental Bank of Commerce, Canara Bank and Allahabad Bank have all posted single-digit growth.
Centurion BoP’s other income, including fee-based income, has risen by more than 89%—the highest among banks in the index. Among others, Kotak Mahindra Bank, ICICI Bank, HDFC Bank, UTI Bank, Union Bank and Bank of India have seen more than 30% rise in their other income from distribution of mutual funds, insurance and investment banking activities. SBI, PNB, Allahabad Bank and Indian Overseas Bank have seen a decline in their other income.
Interest income of banks in the index rose by 28.50%, with all of them, except for SBI, registering a double-digit growth.
Last year, interest income of the banks had grown 19.48%. In percentage terms, Kotak Mahindra Bank has registered the highest growth in interest income—88.36%. Four other new private banks—HDFC Bank, ICICI Bank, UTI Bank and Centurion BoP—have also shown more than a 50% rise in their interest income.
Due to the increase in interest rates, the interest expenses of these banks have also risen. In fact, the growth in their interest expenses is higher than the growth in interest income. This means they have hiked their deposit rates aggressively to mop up money from the market and support their credit (or lending) growth.
However, despite the growth in interest expenses, banks were able to sustain their growth in net profits primarily by cutting down provisioning requirements through which they provide for distressed assets.