Bank of India’s December quarter net profit growth at 12% over a year ago might be ahead of Street forecasts, but its earnings are really a mixed bag.
The best thing about the lender’s results is the 20.2% growth in advances over a year ago, trumping the industry rate. However, deposit growth came in at a measly 13.6%. Thus, the credit-deposit ratio is at a precariously high 80.3%.
This high credit growth was in part driven by the 24% growth in advances to the infrastructure sector, which is not going through the best of times. If the economy doesn’t bounce back as expected in the next fiscal, there is a danger of increasing slippages to bad loans. Note that stressed assets (recast loans and bad loans) still account for some 8.5% of Bank of India’s total advances.
Still, gross non-performing assets (NPAs) at the end of December actually declined by Rs.273.5 crore compared with the previous three months. Thus, gross NPAs make up only 3.07% of the bank’s total advances now, compared with 3.42% at the end of September. Similarly, the lender recast only Rs.150 crore worth of loans in the December quarter compared with Rs.540 crore in September quarter and Rs.3,898 crore in March quarter.
However, the bank has scaled back a bit on provisioning for bad loans. It has set aside only Rs.915 crore in the December quarter compared with Rs.1,552 crore in the September quarter.
Thus, the provision coverage ratio has also slipped a bit. That could also be the reason why net NPAs have shown an increase compared with the end of September.
As for the rest, things aren’t that good. The surge in advances hasn’t translated into a similar increase in net interest income, which grew by 11.7%. That was because net interest margins shrank by almost 20 basis points from a year ago to 2.36%. While yields on advances and investments have come down, Bank of India actually had to pay more for deposits compared with a year ago, explaining the shrinkage in the net interest margin.
While non-interest income increased by 10% over a year ago, it was exclusively driven by treasury operations and recoveries in written-off accounts. The net result was that operating profit grew by a tepid 7.2% over a year ago and the boost to profits came from savings on taxes. That also explains why Bank of India shares gave up their 4% gains earlier in the day and settled 2.5% down from Friday’s close.