PSU banks steal the show in Q3

At a time when corporate India has seen its net profits shrink by 24 per cent, banks have reported a 43.83 per cent net profit growth in the quarter ended December 2008. The growth was mainly driven by gains from treasury operations on the back of falling yields, write-back of provisions and improved net interest incomes (NIIs).

The performance of the banking sector was aided by a marked improvement in operating earnings with NII, the difference between the interest earned and the interest paid, growing 35.92 per cent to Rs 28,526 crore.

On the non-interest income front, the fee income of the banks surged up by 31 per cent to Rs 17,120 crore as against Rs 13,071 crore in December 2007, due to the distribution of various corporate and third-party products. The treasury operations of banks also benefited from softening of the interest rate as the RBI reduced cash reserve ratio (CRR), repo and reverse repo rates.

The highlight of the quarter was the reversal of mark-to-market (MTM) losses on the bond portfolio of the banks, especially in the case of public-sector banks. As the yields on government securities fell significantly to 5.23 per cent levels from 8.46 per cent on October 1, banks witnessed huge MTM profits on their “available for sale” (AFS) bond portfolio.

The non-tax provisions and contingencies declined by 1 per cent to Rs 4,057 crore in the quarter ended December 2008, and accounted for 14.22 per cent of NII. In the first quarter, provision and contingencies went up by 170 per cent to Rs 7,540 crore.

What makes the third-quarter performance more outstanding is the show of the public-sector banks, which have done better than their private-sector counterparts on a cumulative basis. The net profits of public-sector banks surged by 50 per cent compared with the 26 per cent growth reported by private banks.
 

Performance in quarter ended December 2008
Rs crore	PSU banks		Private banks		Aggegrate
	Dec 08	% chg*	Dec 08	% chg*	Dec 08	% chg*
Interest earned	72,171	37.54	20,663	25.82	92834	34.75
Other income	11,861	35.03	5,260	22.69	17120	30.98
Interest expended	50,166	36.37	14,143	27.17	64308	34.23
NII	22,005	40.29	6,521	22.99	28526	35.92
Net profit	10,810	49.89	3,185	26.45	13,995	43.83
*Growth over December 2007

PSU banks recorded a combined net profit of Rs 10,810 crore in the December 2008 quarter compared with Rs 7,212 crore in the corresponding quarter last year. Private-sector banks posted a net profit of Rs 3,185 crore compared with Rs 2,519 crore during the same period.

On a standalone basis, State Bank of India reported a 37 per cent growth in its net profit to Rs 2,478 crore, even after making an additional provision of Rs 750 crore for pension obligations due to the steeply falling yields on government securities, helped by robust growth in loans and treasury income.

Six banks — Lakshmi Vilas Bank, State Bank of Patiala, State Bank of Travancore, Dhanalakshmi Bank, State Bank of Mysore and UCO Bank — have reported more than double net profits. Only one bank - Development Credit Bank (DCB), have reported a net loss of Rs 3.22 crore in the December quarter against a net profit of Rs 25.71 crore in the corresponding quarter a year ago.