Provisioning hits profits

FINANCIAL SCORECARD

IndusInd, OBC buck the trend.

Three out of the six banks, which declared their results on Friday, saw a decline in their profits due to higher provisioning for investments in government bonds.

This follows the Reserve Bank of India’s decision to raise benchmark rates, pushing bond yields higher. Higher interest rates also forced the banks to raise their deposit rates ahead of a planned increase in lending rates, which narrowed their net interest margins (NIMs).

During the first quarter, Union Bank’s NIM fell to 2.63 per cent as compared to 2.80 per cent in the fourth quarter of the last financial year.
    

FACTS AND FIGURES
Banks	Q1 Net  (in Rs crore)	% growth	Provisions* (in Rs Crore)	% growth
UBI	228.29	1.41	295.72	90.32
OBC	220.52	58.44	207.13	309.26
Andhra Bank	77.62	-45	122.65	1223.08
IndusInd Bank	19.1	44.4	15.39	30.64
Karnataka Bank	20.7	-60	102.99	318.65
Karur Vysya Bank	30.53	-36.32	49.28	327.54
Note: % growth (as compared to Q1 FY07-08)  *Provisions and contingencies;                                                              Source: BSE

State-run Andhra Bank led other five banks, which announced their results today, in reporting a lower net profit for the quarter ended June 30. Its profit fell 45 per cent to Rs 77.62 crore because of higher provisioning.

Private sector banks like Karnataka Bank and Karur Vysya Bank recorded a dip of about 60 per cent and 36 per cent respectively. However, Union Bank’s profit increased marginally to Rs 228.29 crore.

All the six banks witnessed a radical surge in their provisioning component during the quarter. While the PSU banks appeared to have made higher provisioning compared to the corresponding quarter previous year, the situation looked equally bad for the private sector banks.

During the quarter, Union Bank lost Rs 295.72 crore towards provisions and contingencies. This amount is almost 90 per cent higher compared to the corresponding period last year. Oriental Bank of Commerce lost about 309 per cent more towards provisions at Rs 207.13 crore. IndusInd Bank made 30.64 per cent higher provisions at Rs 15.39 crore.

Andhra Bank set aside Rs 122.65 crore during the quarter compared to just Rs 9.27 crore last year. Consequently, the bank’s net profit came down by about 45 per cent compared to the first quarter of the last financial year. This net profit is the lowest since September quarter of 2002.

Karnataka Bank reported its lowest ever net profit at Rs 20.7 crore, a fall of about 60 per cent compared to the same period last year. The bank made provisions of about Rs 102.99 crore during the quarter, as against just Rs 24.6 crore last year.

Similarly, Karur Vysya Bank registered its lowest quarterly net profit in five quarters at Rs 30.53 crore, which was also 36.32 per cent lower than what it reported in the corresponding period of the previous year. The bank made its highest ever provisioning at Rs 49.28 crore during period under review.

The exceptions to the declining profit trend among today’s results were Oriental Bank of Commerce (OBC) and IndusInd Bank. While OBC managed a 58 per cent growth in its net profit at Rs 220.52 crore, IndusInd Bank’s profit for the quarter grew 44 per cent to Rs 19.1 crore, though the Hinduja Group-owned lender’s provisions climbed 31 per cent.