Higher provisioning hits PSB profits in Q3

Written by fe Bureau | Mumbai | Updated: Feb 8 2014, 09:09am hrs
Higher provisioning in the December quarter has cost public sector banks (PSBs) dearly as, barring Bank of Baroda, all others have reported a decline in net profit. Punjab National Bank (PNB), for instance, saw its Q3 profit fall a whopping 49% y-o-y to R755 crore due to higher provisioning.

Total provisions at PNB during the quarter increased 41.5% y-o-y to R1,947 crore and provisions towards non-performing assets (NPAs) zoomed to R1,083 crore from R466 crore in the previous year. Provisioning for depreciation on investments jumped to R219 crore from R32 crore last year, a surge of 584%.

Bank of India also saw a 27% dip in its net profit for the quarter ended December 31, 2013, to R585.82 crore, again on the account of higher-than-expected provisioning expenses of R 1,404 crore in Q3. The banks net interest income (NII), however, increased 13% to R4,221.12 crore compared to the same quarter last fiscal.

Bank of Indias net interest margin (NIM) was up 10 bps sequentially to 2.89% in the December quarter.

We are expecting our domestic NIM to be around 3% for the rest of the year, because we have only two more months for the current financial year to end, Bank of India CMD VR Iyer said. "Net profit was R586 crore on account of higher provisioning. As per RBI guidelines, we have taken restructured assets from the standard category to the sub-standard category and made much higher provisions, Iyer added.

Bank of Baroda was, however, an exception as it reported a marginal rise of 3.6% in Q3 net profit. We will grow about 2-3% higher than the industry. So, if the industry is growing around 15-16%, then Bank of Barodas 18-19% growth would be a given, said SS Mundra, CMD, on credit growth and added that the bank would choose profitability over growth for the next few quarters.

On a brighter note, public sector banks showed modest-to-healthy increases in net interest income (NII) growth with the highest being from Central Bank of India at 28% y-o-y, followed by Bank of India at 17.8%.

Bangalore-based Canara Bank reported a 42.39% drop in net profit in the December quarter and, like other PSBs, its total provision at R1,182 crore compared to R799 crore for second quarter hurt its profits.

Smaller state-owned banks like Andhra Bank, Indian Overseas Bank and Corporation Bank also took a hit in their net profits. Whereas Andhra Banks net profit in Q3 declined 82.27% y-o-y, IOBs net declined 35% y-o-y and Corporation Banks fell 58% y-o-y in the quarter under review.

The bottomline has taken a beating, mainly due to higher provisioning towards bad debts, restructured accounts and reversal of interests, said M Narendra, CMD, IOB.