Geojit provisions Rs 4 crore for client defaults

Worrying times are ahead for top brokerage houses, if the fourth quarter results of retail brokerage Geojit Financial Services and the mark-to-market provisioning of Rs 23 crore by Prime Securities are any indication.

Geojit Financial reported an erosion of over 46 per cent in its Q4 net profit compared with that in the previous quarter ended December 2007, which was mainly driven by the raging bull market.

The firm also declared over Rs 4 crore as a provision for loss arising out of bad debts. "The provisioning for loss was done in case the clients fail to honour their obligation," said C J George, managing director, Geojit Financial.

Geojit is mainly active in commission-based retail broking activity and carries out insurance and mutual fund distribution. A substantial chunk of profit for the broking outfit also comes from its Dubai-based subsidiary Geojit Securities.

"While the distribution business has seen a rise, profits from stock broking activity have taken a hit as volumes on stock bourses have declined substantially," said George. Geojit, however, is an exception as it does not run any proprietary trading book.

But this is not the case with other top brokerage houses, which have big proprietary books. Share prices of listed brokerage houses, including Motilal Oswal, Indiabulls, India Infoline, Edelweiss Capital, Religare Securities and Prime Securities, have witnessed over a 50 per cent fall this calendar year as stock prices crashed and investors stayed away from markets.

Kochi-based Geojit declared a net profit of Rs 12.90 crore for the quarter ended March 2007-08 compared with its previous quarter (December 2007) profit of over Rs 22 crore.

Last month, Prime Securities set aside record Rs 23 crore ($5.7 million) as a provision for losses suffered during the recent stock market crash.

The brokerage house also declared a loss of Rs 3 crore in the futures and options segment. Market experts say the final quarter profits of a majority stock brokers would suffer due to the prevailing bearish market sentiment.

However, confident of recovering their bad debts within coming weeks (or months), broking houses are also postponing the Q4 results.