MTM losses take a toll on banks' Q1 profits

The country’s 40 listed banks reported near flat profit growth during the first quarter of 2008-’09 as higher provisioning ate into their bottom lines.

On a cumulative basis, these banks reported a 0.46 per cent rise in net profit to Rs 6,918 crore for the quarter ended June this year as against Rs 6,866 crore during April-June 2007.

With bad debt and bond yields on the rise, cumulative provisions and contingencies turned out to be higher than the combined net profit. Total provisions rose over two-and-a-half times to about Rs 7,667 crore during the first quarter of 2008-09 compared with Rs 3,056.18 crore during April-June 2007.

It was around 120-basis point rise in the yield on the 10-year government paper so far in 2008-’09 to 9.10 per cent that hit the banks the most. While State Bank of India was the biggest loser, providing Rs 1,656 crore for mark-to-market (MTM) losses during the first quarter, ICICI Bank said its treasury income and the loss on the bond portfolio was Rs 594 crore.

The country’s top six banks, including Punjab National Bank, HDFC Bank, Axis Bank and Bank of Baroda, together accounting for nearly half the business, reported total MTM provisions of Rs 2,700 crore during the first quarter.

MTM provisions to Rs 190 crore meant that Vijaya Bank reported a loss of Rs 77 crore during the first quarter this year compared with a profit of Rs 111 crore in the corresponding period last year. 

The net interest income (NII), the difference between interest income and outgo, is also showing signs of moderation, rising 19.33 per cent to Rs 22,557.43 crore at the end the first quarter of the year compared with a rise of 22-25 per cent that banks had got used to in the previous few quarters.

The net interest margin (NIM), the main yardstick for assessing a bank’s income prospects, remained in the range of 2.5 per cent to 3 per cent for most big banks. During the first quarter of 2007-’08, banks reported an NIM of 2.9-3.4 per cent.

BRUISED BOTTOM LINES Performance of the top 10 banks during April-June 2008
Banks	Net Profit Rs crore	Net Interest Income Rs crore	Net Interest Margin* (in %)	Provisions crore
SBI	1640.79	4817.65	3.03	1549.47
	(15.10)	(14.66)	(3.27)	(872.24)
ICICI Bank	728.01	2090.00	2.4	792.49
	(-6.00)	(41.31)	(1.9)	(43.50)
Axis Bank	330.14	810.46	3.35	296.73
	(88.67)	(92.55)	(2.56)	(194.00)
HDFC Bank	464.35	1723.50	4.1	344.47
	(44.55)	(65.36)	(4.2)	(12.16)
PNB	512.4	1445.00	3.27	210.53
	(20.55)	(11.07)	(3.59)	(10.50)
BoB	370.86	1057.01	2.76	280.31
	(40.03)	(16.90)	(3.02)	(98.20)
BoI	562.00	1181.00	2.89	349.01
	(78.41)	(24.70)	(2.96)	(75.17)
Canara Bank	122.68	1019.19	2.57	540.91
	(-49.00)

(14.00) (2.54) (79.40) Union Bank228.29

810 .00

2.63295.72 (1.40)(10.35)(2.96)(90.32) Central Bank
of India  59.00476.001.74155.09

(-39.79)

(-15.6)

(2.82)

(NA)

Figures in brackets (other than those for NIM)
show % change from April-June 2007
* NIM figures in brackets are for Q1FY07

Analysts said, going forward, the outlook is grim. Various agencies have warned of higher defaults, particularly on the retail portfolio, which will force banks to make additional provisions.