Govt banks' profits shrink on higher NPA provision, rise in cost

PNB net dips 20%, Indian Bank slips 15.4%, Union Bank of India sees just 2% rise in profit

Higher provisioning and increase in the cost of funds have eaten into the profitability of public sector banks, as Punjab National Bank (PNB) and Indian Bank reported drops in net profit for the quarter ended March, while Union Bank of India (UBI) reported a flat growth in the bottomline.

PNB’s net profit declined 20.6 per cent to Rs 1,131 crore during the fourth quarter of FY 12-13, against Rs 1,424 crore in the previous year, as it made higher provisioning for non-performing assets. Announcing the result, K R Kamath, CMD, said the bank made Rs 1,722 crore provisioning in Q4, 2012-13, 13.9 per cent higher than Rs 1,512 crore in the previous year’s Q4.

Net NPA of the bank rose to 2.35 per cent of advances in 2012-13 against 1.52 per cent a year ago. The bank’s gross NPAs rose to 4.27 per cent against 2.93 per cent a year ago.

Despite the fall in net and operating profits, PNB shares rose 4.57 per cent at Rs 783.45, as the bank declared higher dividend and NPAs came down sequentially in Q4. While gross NPAs came down to 4.27 per cent in Q4 from 4.61 per cent in Q3, net NPAs fell 2.35 per cent from 2.56 per cent over the period. Provision coverage ratio also improved to 58.83 per cent from 55.97 per cent in this period.

“On the asset quality front, PNB saw an improvement (contrary to market expectations). The bank reported sequential improvement in gross NPA levels by around four per cent. The bank prudently chose to increase its provision coverage ratio over earnings and thereby increased its provisioning expenses by 44 per cent year-on-year,” said Vaibhav Agrawal, vice-president, (research-banking), Angel Broking.

Another state-run lender Indian Bank has reported a drop of 15.4 per cent in net profit to Rs 292.12 crore for the quarter ended March 31 as compared with Rs 345.41 crore, due to higher provisioning, according to the bank management.

T M Bhasin, chairman and managing director, Indian Bank, said provisioning during the last quarter was around Rs 390 crore, while for the whole year, it was Rs 704 crore, towards pension, gratuity fund and provision towards NPA.

Mumbai-based public sector lender Union Bank of India reported a two per cent increase in net profit at Rs 789 crore for the March quarter due to lower margins.

Net interest margin of the bank came down to 2.89 per cent in the fourth quarter from 3.16 a year ago.

“Growth in profits is lesser because margins were under pressure, as cost of funds didn’t come down despite shedding bulk deposits,” said D Sarkar, chairman and managing director, UBI. He said credit growth was not as expected. Yield on advances also came down, and with higher cost of funds created pressure on NIMs, according to Sarkar.