Continuous rate hikes and high inflation have played a spoilt-sport with the earnings of the banking sector. It has particularly been hard on public sector banks.
State-owned lender Bank of India's (BoI) first quarter net profit fell 29% year-on-year at Rs 517 crore on the back of rising cost of funds and higher provisioning norms. The net interest income (NII) rose nearly 6% at Rs 1,841 crore. Other income too increased by 12% at Rs 660 crore.
"The higher cost of funds and increase in NPAs actually dented our profit margins," said Aloke K Misra, CMD, Bank of India speaking at a conference.
"While the cost of deposits rose from 4.79% to 6.01% during quarter, the rise in NPAs led us to make additional provisions. Sensing slower pace of economic growth, we have revised our credit growth to 20% from 22% in March quarter. Similarly, deposit growth target is now pegged at 17% as against 20% earlier."
The net interest margin (NIM) contracted sequentially to 2.19% as against 2.94% in March quarter. The bank's global advances (domestic plus international) grew 21.55% y-o-y to Rs 2,14,936 crore. Domestic deposits increased 22.38% to Rs 2,45,581 crore while the overseas deposits soared 44% y-o-y to Rs 47,511 crore.
"In the coming quarters, we will bring down exposure in bulk deposits but step up share of retail deposits. We expect to increase our CASA ratio to 34% in FY12. Moreover, we would attain an NIM of around 2.50% in FY12," Misra added.
The current account and savings account or CASA ratio improved from 29% to 30.48% quarter-on -quarter basis.
Meanwhile, the bank has shown signs of stress on asset quality front during the quarter. Its net non-performing assets increased sequentially by 36 basis points to 1.27% while gross NPAs were up at 2.69% against 2.23% in the March quarter.
"This is largely due to conversion to system generated NPA system. Most of the NPAs are from agriculture sector. In the next quarter, there would be some further stress as we will implement 100% system generation in NPAs by September, " Misra told Moneycontrol.com. So far, the bank has implemented 90%.
The bank’s provisions were up 47% at Rs 567 crore as against Rs 386 crore a year back. Similarly, operating expenses including employee costs and others were at Rs 1,105 crore versus Rs 916 crore in June quarter, last year due to pension liability.
"A sum of Rs 110.61 crore has been charged to the profit and loss account during the period on proportionate basis towards additional liability of Rs 2,212.15 crore on account of reopening of pension option," said a release issued by the bank.
The provisioning coverage ratio stood at 66.76% versus 70% mandated by the RBI.
Source: www.moneycontrol.com
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