Public sector lenders bank on austerity to shore up balances

Seven banks, including SBI, saw their bottom line shrink in the fourth quarter.

Public sector banks have decided to keep close tabs on costs. Many have begun cost-cutting and organisational restructuring exercises as part of a plan in this regard.

This comes at a time when profitability will remain under pressure due to deterioration in asset quality and a rise in the cost of funds. The move will also help them keep their base rate low, as the new loan pricing mechanism, which will kick in next month, will factor in the overhead costs in the overall calculations.
 

FEELING THE HEAT REPORTED NET PROFIT IN QUARTER ENDED MARCH (RS CRORE)
	Mar ‘09	Mar ‘10	% Chg
United Bank	134.83	46.22	-65.72
IOB	322.37	127.44	-60.47
Bank of India	810.37	427.91	-47.20
SBI	2742.31	1866.60	-31.93
Canara Bank	718.81	503.10	-30.01
Syndicate Bank	206.63	168.23	-18.58
Allahabad Bank	264.09	224.51	-14.99
Bank of Maharashtra	137.33	139.06	1.26
IDBI Bank	313.67	318.41	1.51
Indian Bank	394.08	409.96	4.03
Andhra Bank	201.21	240.26	19.41
Corporation Bank	260.49	312.33	19.90
Bank of Baroda	752.69	906.28	20.41
Dena Bank	111.17	137.07	23.30
Union Bank	465.06	593.50	27.62
Vijaya Bank	102.25	130.92	28.04
PNB	865.57	1135.03	31.13
Oriental Bank	180.82	317.04	75.33
Central Bank	62.51	171.06	173.65
UCO Bank	102.56	379.80	270.32
Compiled by BS Research Bureau                                                 Source Capitaline

The immediate trigger for the toning-up exercise is the fourth quarter results. Seven banks, including State Bank of India (SBI), Bank of India (BoI), and Canara Bank, have seen their bottom line shrink. Another three — Bank of Maharashtra, IDBI Bank and Indian Bank — reported single-digit increases in net profit. The list does not include the SBI associates.

The country’s largest bank, SBI, whose profits fell 32 per cent during the quarter ended March, has decided to cap miscellaneous expenses, such as travel, stationary and phone bills, at last year’s level.

Similarly, Bank of India, which reported 47 per cent lower net profit for the quarter, decided to cut down controllable costs by 20 per cent. Like SBI executives, BoI’s will also have to cut on air travel, and restrict the use of stationary. The bank opted for cost cuts as it is grappling with mounting asset quality pressure and has seen profit slide for three quarters in succession.

“The office expenses or travel expenses, cannot be allocated to any departments. If we can check the unallocated cost, then it will help us in bringing down the base rate,” said a BoI executive.

Another Mumbai-based lender, Union Bank of India, has decided to abolish zonal offices and the position of field general manager. It will now follow a three-tier structure comprising branches, region offices and the head office. While the new structure, put in place this month, is aimed at avoiding duplication of work and reduction in the turnaround time, reduction in costs will be another benefit.

During the last financial year, Bangalore-headquartered Canara Bank completed the process of abolishing the regional offices and is following a three-tier structure consisting of branches, circle offices and head office.

The public sector players seem to have taken a cue from ICICI Bank, the country’s largest private sector bank, which opted for massive cost cuts, including renegotiation of rentals, relocation of offices and reduction in phone bills and stationary to improve the cost-income ratio.