Yes Bank rides on other income, IDBI on interest earnings

Yes Bank rides on other income, IDBI on interest earnings

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.

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 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 515.91 crore from 429.10 crore in the same quarter last year as interest earnings increased to 5,812 crore from 4,534 crore. The profit beat a Bloomberg estimate of 414 crore.

The bank’s other income, however, fell to 479.10 crore from 535.15 crore.

IDBI Bank’s growth was driven by a 20% rise in advances to 1.55 trillion from 1.30 trillion last year.

IDBI Bank’s stock lost 2.06% to close at 104.8, while Yes Bank shares lost 1.79% to close at 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 6.3 earnings per share (EPS), said Jigar Shah, analyst at Kim Eng Securities Pvt. Ltd.

“They have delivered 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 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 642 crore, up from 427 crore last year.

Profit for retail banking, however, dropped 84% to 20.47 crore from 127.47 crore last year.