Banks profit growth flat on higher provision, weak loan demand

Profitability of public sector banks came under pressure in the first quarter of the current financial year with twp large lenders today reporting flat net profit growth.

Delhi-based Punjab National Bank has reported 2.4% net profit growth to Rs 1275.32 crore as loan demand remained subdued. The net interest income growth on the bank was a mere 6% though net interest margin have been maintained at 3.5% aided by shedding of Rs 14,000 crore of high cost deposits.

In Q1, PNB’s has registered a loan growth of 3.6% on year-on-year basis while deposit growth was 3%.

According to KR Kamath, chairman and managing director of PNB, the slow pace of growth in deposit was due to shedding on high cost deposits. “The savings bank deposit growth – at 15%, is healthy. The growth is core term deposits (deposits those are accepted at card rate) is 27%.,” he said.

The bank’s share of current and savings account deposit (Casa) or the low cost deposit, in total deposit, stood healthy at 39.63%.

Another government-run lender, Bank of India, reported a 8.7% rise in net profit at Rs 887 crore due to higher provisioning. It growth in profit was mainly due to rise in net interest income (NII) and other income comprising sale of investments, commissions etc.

BOI's Net interest income (NII) was up 24.15% from Rs 2,044 crore to Rs 2,537 crore in April-June 2012. The domestic net interest margin improved to 3.07% from 2.27% a year ago. Its cost of deposits came down to 5.71% in Q1 of FY14 from 5.95% a year ago. The non-interest income rose by 40.42% to Rs 1,181 crore from Rs 841 crore.

The gross non-performing assets rose to Rs 9,413 crore (3.04%) from Rs 6,751 crore (2.56%) a year ago. The provisions for bad loans and restructured assets rose to Rs 694 crore up from Rs 472 crore. The provision coverage ratio stood at  60.97. The restructured assets stood at Rs 16,231 crore (5.24% of total advances.)