Mumbai: IDBI Bank Ltd and Corporation Bank, first among the public sector banks to announce their fourth quarter earnings on Friday, posted handsome net profits, beating the expectations of the market.
Corporation Bank’s net profit rose 26.7% over the year-ago quarter. IDBI Bank did even better, posting 28.2% growth in its net profit.
Analysts expect profits for the public sector banks as a group, that account for 73% of banking industry assets, to rise by a modest 15-16% in the January-March quarter on shrinking interest income as these banks have cut their lending rates by 150-200 basis points during this quarter. One basis point is one-hundredth of a percentage point.
Fees, commissions and earnings from foreign exchange and derivatives substantially contributed to both the banks’ net profits. The so-called other income consisting of fees, commissions, etc., rose 105.6% to Rs493.26 crore for Corporation Bank. For IDBI Bank, the rise of such income has been 20.6% to Rs472.29 crore in the quarter.
Despite the cut in lending rates, both the banks have been able to maintain their net interest margins (NIM) or the gap between what they spend on their deposits and what they earn on loans. Corporation Bank’s NIM remained stable at 2.43% for the full year and IDBI Bank’s NIM improved to 1.06% from 0.71%.
Corporation Bank did not provide figures for its fourth quarter NIM. IDBI Bank’s NIM improved to 0.98% for the quarter from 0.7%.
Despite the economic slowdown that is denting borrowers’ ability to repay bank loans, both the banks have been successful in reducing their non-performing assets, or NPA, thanks to a large scale restructuring of stressed assets.
IDBI Bank’s gross NPAs as a percentage of total assets dropped to 1.38% in fourth quarter, down from 1.87%. After provisions, net NPAs dropped to 0.92% from 1.30%.
Corporation Bank’s gross NPAs dropped from 1.47% to 1.14% and net NPAs from 0.32% to 0.29%.
The Reserve Bank of India has allowed banks to restructure those assets where borrowers, affected by a slowing economy, are not in a position to meet their payment commitments. The deadline for filing applications for restructuring of loans was 31 March and banks are expected to complete the exercise by 30 June.
IDBI Bank has restructured 82 accounts, involving Rs3,131 crore. Corporation Bank has restructured at least 4,300 accounts so far but the funds involved is only Rs1,043.46 crore.
If the economy does not recover, “we have to be very careful about our assets and have to be well prepared for that,” said J.M. Garg, chairman and managing director of Corporation Bank. He said credit growth of his bank is slowing down and is expected to slow down further in the current year. Credit growth for 2008-09 slowed down to 24% from 30% a year ago.
IDBI Bank’s credit growth for the year is also expected to slow down from the current level of 26%. The bank’s chairman and managing director Yogesh Agarwal said that his bank will keep its credit growth in line with the central bank’s projection of 20%.
IDBI Bank has sought government nod to raise capital.