Banks' net profit registers 42 per cent growth in Q3

The aggregate net profit of banks during the quarter ended December 31, 2007, has registered a 41.5% growth largely due to lower provisions and strong growth in other income.

Other income rose a healthy 51.48%, while provisions and contingencies registered a marginal 3.87% rise. Interest income has increased by 34.52%, while interest expenditure moved up by 44.57%.

The quality of earnings was much better for the private sector banks compared to banks in the public sector. The net profit of 18 private banks rose 48.94%, while 25 public sector banks posted 38.63% rise in net profit.

Public sector banks registered better growth in other income (up 56.1%) compared to private banks (up 44.21%). The cost of borrowing and deposits continued to be higher for both private as well as public sector banks. Interest cost of public sector banks was at 43.76%, while it was at 46.91 for private banks.

The net interest income (NII) of the banking sector rose 27.7%, while it increased by 44.75% for private banks and 20.87% for public sector banks. 
 

ROBUST NUMBERS Banks' growth rate for quarter ended December 31, 2007
	Public (25)	Private (18)	Total (43)
Interest earned	30.60	46.31	34.52
Other income	56.09	44.21	51.48
Net interest income	20.87	44.74	27.70
Interest expended	43.76	46.91	44.57
Provisions & conting	-9.57	34.30	3.87
Operating profit	29.25	50.81	35.34
Net profit	38.63	48.94	41.56
NII: total earnings - interest cost

The increase in NII for private sector banks is attributed to recent capital infusion by new private banks to retire high-cost deposits. The public sector banks suffered on high cost of loans and deposits.

The third quarter study of banks' results by IIFL Research indicate that the margins for the banking sector as a whole remained under pressure. The strong growth in NII for private banks attributed it to low cost capital infusion.

According to study by IIFL Research, banks are taking higher risk to increase NII as reflected in the rising share of unsecured loans. Unsecured lending is on the rise, to offset the slowdown in traditional products like mortgages and vehicle loans.

The retail loan growth declined 12% for ICICI Bank, while its share of unsecured personal loans rose from 14% in 2006-07 to 17% in nine months of 2007-08.

The share of unsecured personal loans for Axis Bank increased from 11% to 16%, while it was marginally higher at 24% for HDFC Bank.