Corporation Bank net down 6.78%

The Mangalore-based Corporation Bank reported 6.78 per cent fall in net profit for the fourth quarter ended March 2006 as a rise in cost of deposits narrowed yield on advances.

The bank's net profit for the quarter stood at Rs 100.27 crore, down from Rs 107.57 crore a year earlier. Its total income in the fourth quarter increased by 22.69 per cent to Rs 862.83 crore. Interest income grew at a similar rate but the growth in interest expenditure was higher at 36 per cent.

The bank's net interest margin at the end of March 2006 dropped by 38 basis points to 3.56 per cent from 3.94 per cent a year earlier, while the yield on advances fell by 16 basis points to 8.26 per cent from 8.42 per cent.

For the full year ended March 2006, net profit was up 10.51 per cent to Rs 444.46 crore as compared with Rs 402.16 crore a year earlier.

The increase in general provisioning on standard loans by 15 basis points to 40 basis points also squeezed the bank's profitability.

Corporation Bank chairman, B Sambamurthy, said the pressure on margins would continue over the "medium term" (few more quarters).

Sambamurthy said the bank will not raise its prime lending rate (PLR) from the current level of 10.50 per cent, but the asset-liability committee will meet next week to decide on increasing the sub-PLR rates, including on existing loans.

The bank increased sub-PLR rates by 150 to 200 basis points in the quarter, but it was still not enough to cover the rise in cost of resources.

The bank raised deposit rates by 100-150 basis points during the quarter and also raised three to six month deposits at over 7.5 per cent interest. It raised minimum lending rates to 8.5-9.0 per cent from around 7 per cent in the quarter and plans to raise it further towards the bank's PLR.

The banking sector witnessed a sharp rise in cost of resources in the fourth quarter as they faced a liquidity crunch largely attributed to an unprecedented over 30 per cent growth in credit for the second successive year.

"The increase in cost of deposits was not passed on to borrowers. We absorbed the increased costs," Sambamurthy said, adding that the bank also had to make Rs 47 crore of provisioning in the quarter ended March 2006 against Rs 37 crore a year earlier because of the increase in general provisioning on standard assets to 0.40 per cent from 0.25 per cent.

Credit deposit moved to a high of 72.88 per cent as on March 31, 2006, from 68.10 per cent a year earlier. Advances portfolio increased by 29.20 per cent to Rs 23,962 crore at the end of 2005-06, while aggregate deposits rose by a slower 20.72 per cent to Rs 32,876.53 crore.