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Business News/ Companies / Public sector banks see Q1 profits decline on provisions
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Public sector banks see Q1 profits decline on provisions

Net profit in June quarter falls 84% for Bank of India, 48.7% for Punjab National Bank, 21.88% for Union Bank

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Photo: Mint

Three large state-run banks on Tuesday reported a sharp profit drop for the fiscal first quarter as they set aside more money to cover the risk of loan defaults—an indication that an economic recovery is still tenuous.

Bank of India, the third largest public sector lender in terms of assets, No. 4 Punjab National Bank and No.6 Union Bank of India said their first quarter net profit dropped 84%, 48.7% and 21.88%, respectively, in the three months ended 30 June because of higher provisions.

They expect a recovery in the next three quarters.

Mumbai-based Bank of India’s profit drop was largely on account of a backdated provision of about 1,300 crore that the lender had been allowed to spread over three quarters starting in the June quarter. The provision was caused by a large restructured loan account that turned bad in the March quarter.

As a result, it took a June quarter hit of 440 crore; the bank will take an equal hit in the subsequent two quarters. Additionally, it adopted a new method of calculating the retirement benefits for staff, dragging down net profit by about 236 crore.

Overall, provisions in the quarter rose 69.6% to 1,514.73 crore compared with 893.07 crore in the year-ago period.

Bank of India’s profit for the quarter ended June was 129.72 crore compared with 805.69 crore in the year-ago quarter. Analysts polled by Bloomberg had been expecting the bank to post a profit of 356.8 crore.

The lender’s net interest margin (NIM), a key measure of profitability, was at 2.12%, down from 2.16% a year ago.

Net interest income (NII), or the difference between interest earned and that expended, increased 8.42% to 2,912.68 crore from 2,686.49 crore.

Other income, or income earned through fees, trading in foreign exchange and gains on revaluation or sale of investments, fell 18% to 840.57 crore from 1,024.47 crore a year ago. An adverse interest rate scenario will weigh on the profitability of the bank in the September quarter as well, it said.

Bank of India, which reported a loss of 828.94 crore in the March quarter, remained under pressure on asset quality.

Gross non-performing assets (NPAs) as a share of total loans rose to 6.8% in the June quarter from 3.28% a year ago. Net NPAs rose to 4.11% from 2.14%.

Slippages, or good loans turning bad, amounted to 6,535 crore in the quarter. The bank managed to recover 468 crore and upgrade 1,193 crore of its bad and stressed assets.

“Recovery was not as good as we expected, but we have managed to give a push to the recovery momentum and the results will be evident in the coming quarter," said managing director and CEO B.P. Sharma. “Despite optimism, the Indian economy is still not out of the woods."

Securities house Emkay Global Financial Services Ltd termed Bank of India’s results “dismal", and said the bank’s NIM, the difference between yield on loans and the cost of deposits, was flat at about 2%, one of the lowest among public sector banks. Asset quality of the bank deteriorated by more than 21% quarter-on-quarter, Emkay said in a note to clients.

Delhi-based Punjab National Bank’s net profit fell 48.7% in the June quarter to 721 crore, from 1,405 crore in the year-ago period on treasury losses, bad debts and fall in interest income.

NIM fell to 2.9% in the quarter from 3.42% a year ago. NII fell 6.3% to 4,102 crore from 4,380 crore. Other income rose 13% to 1,397 crore from 1,236 crore.

Bad debts as a share of advances rose sharply, with the gross NPA ratio at 6.47% and net NPA ratio at 4.05% as of 30 June, compared with 5.48% and 3.02%, respectively, a year ago.

Managing director and chief executive Gauri Shankar said the absolute amount of bad loans had come down for the first time in nine quarters. “As the economy improves over the next three quarters, the balance sheet position improves," he said.

He added that credit demand from industry remains muted, with stress still seen in sectors such as infrastructure, sugar, steel and power. The bank will also consider strategic debt restructuring in around four companies, he said. The bank provided for 375 crore for treasury losses against a write-back of 381 crore a year ago.

Mumbai-based Union Bank of India on Tuesday reported a 21.9% drop in its net profit for the quarter ended June, dragged down by large provisions to take care of deteriorating asset.

Net profit fell to 518.78 crore from 664.11 crore. A Bloomberg poll of 23 analysts had expected the bank to post a profit of 495.5 crore. Revenue rose 5.8% to 9,043.17 crore, the bank said in its filing with the exchanges.

Gross bad debt as a share of total loans rose to 5.53% from 4.27% a year ago. Provisions rose 63.5% to 642.41 crore. Net NPA ratio stood at 3.08% against 2.46% in the year-ago period.

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Published: 29 Jul 2015, 12:36 AM IST
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