Slowdown dents margins of urban co-op banks in 2009-10

NIMs decline to 2.5 per cent from 2.9 per cent in 2008-09.

Facing the brunt of economic slowdown due to the global financial turmoil, Indian urban cooperative banks reported a drop in the interest margin (NIM) in 2009-10.

NIMs for the sector declined to 2.5 per cent for 2009-10, from 2.9 per cent in 2008-09. Net profits declined in the past two financial years, say Reserve Bank of India data.

The sector reported lower return on assets (RoA) during the past two years as compared with 2007-08. The decline in RoA was mainly due to a decline in NIM and non-interest margin during the past two years.

RoA of the scheduled UCBs sector had witnessed a rising trend during the past decade. The interest income of scheduled UCBs grew at a higher rate than that of non-scheduled UCBs at end-March over the previous year. Despite this, the non-scheduled UCBs were able to post higher net profits because of the deceleration in operating expenses, especially the staff expenses during the same period.

Improving health
The tally of financially weak urban banks declined (grade III and IV banks) to 330 in 2009-10 from 392 in 2008-09. Due to the consolidation process in the sector, the percentage of banks in grades III and IV witnessed a declining trend during recent years.

There was an improvement in the asset quality of the entire UCB sector in both absolute and percentage terms as at end-March over the previous year. Gross bad loans declined by Rs 135 crore to Rs 12,727 crore.

However, both gross as well as net non-performing loans of the UCB sector continued to be on the higher side, RBI said, in its Trends and Progress report for the banking sector in 2009-10.

Along with a decline in non-performing loans, there was also an increase in the coverage ratio of UCBs as of end-March over the previous year, indicating improvement in financial soundness. The provision coverage ratio improved to 62.9 per cent at the end of 2009-10 from 59.9 a year before.

The financial performance has improved considerably over the decade. The scheduled UCB sector started reporting overall net profits since 2003-04, as compared with net losses prior to it.