Banks' other income dips first time in 3 yrs

Interest spread rises 35.7% for private banks.

The growth rate of listed banks' net profits has dipped to a 12-quarter low in April-June 2004. The other income component, which was an important pillar of bank profitability in the past, fell by 3 per cent.

This is the first time in the last three years that the other income component has seen a fall. However, interest income has increased by a negligible amount in the last five consecutive quarters.

Nevertheless, courtesy a 18.7 per cent rise in the net interest spread compared with gross interest earnings of 3.7 per cent, the 37 listed banks managed a 17.1 per cent rise in net profit in April-June 2004.

Private banks were more vulnerable to a fall in the other income component, and no wonder they recorded a lower 12.1 per cent growth in profits in the quarter.

Public sector banks, however, reported a 20.5 per cent rise in profits, supported by a 9 per cent increase in other income. Private banks reported a 13.1 fall in other income.

This study shows that almost all listed banks managed to show a growth in profits largely on account of the lower cost of borrowings and a decline in tax and other provisions.

In fact, the aggregate Rs 761.62 crore rise in the net profit was because of a Rs 709.23 crore fall in the cost of borrowing.

The provisions for non-performing assets slipped by Rs 1,170 crore, other provisions decreased Rs 301 crore and tax provisions fell by Rs 14 crore.

With interest rates down and other income buckling under rising bond yields, banks are making profits by increasing their interest spreads.

Private banks are taking more advantage of lower interest rates than their public sector peers. Private banks posted a 35.7 per cent rise in interest spread against a modest 13.8 per cent rise by public sector banks.