Treasury boosts bank profits in H1

Our Banking Bureau

Mumbai, Oct 14: Treasury operations of most banks, including foreign banks and those in the private sector, have bolstered their bottomlines during the first half of 2001-02. However, the non-performing assets (NPA) bug continues to haunt the banking industry, particularly public sector banks. Private and foreign banks are in for a good show in the first half, riding on their cost-cutting exercises and greater reliance on technology.

The first half results of the banks assume importance this year in the context of the Reserve Bank of India’s (RBI) latest diktat that banks have to turn in their half-yearly results, incorporating all the related provisioning, from this year onwards.

“Due to the downward trend witnessed in interest rates during the first six months ending September 2001, the market value of investments of banks, particularly in dated government securities, have gone up during the period, raking in good returns for the banks,” an official of a leading public sector bank who wished not to be identified told The Financial Express. The statement seems to hold good for all the segments of the banking sector.

State-run banks on deposits high
“While the largest commercial bank, State Bank of India is likely to maintain a healthy profit trend, the other major banks like Bank of India, Bank of Baroda, Canara Bank and Punjab National Bank (PNB) are expected to register reasonable growth rates in profits,” a top PSU bank official told The Financial Express.

Punjab National Bank’s (PNB) chairman and managing director, SS Kohli said that PNB is likely to post over 7 per cent growth in deposits and advances during the first half. However, the bank expects good returns from its treasury operations. To buttress this point he also said that PNB’s subsidiary, PNB Gilts was likely to post a healthy performance in the first half.

Though caught in a bind due to lacklustre business atmosphere due to the economic slowdown, the state-owned banks are confident that they will have ‘targetted profit growth’ during the first half of 2001-2002, a senior banker said but the overall situation was aptly defined as ‘high on deposits side and low on credit side’.

However the bankers fear that the non-performing assets will once again be a drag on the performance of the bank in the wake of fears of continued slowdown in economic growth.

“Without provisioning for the non-performing assets, our profits are quite good during the first half,” said a chairman of a prominent public sector bank adding that only after auditing of the accounts the exact NPA provisioning can be known.

During the first half of the current fiscal, Union Bank of India (UBI) has witnessed a credit offtake of Rs 2,300 crore with retail credit of Rs 471 crore, according to Union Bank sources.

“We have achieved this due to the prudent strategy that we adopted in our way to achieve the targetted goal of 18 per cent credit expansion to Rs 22,000 crore. The bank has given thrust to agriculture, retail lending and export credit.” The bank’s focus would be on consumer or personal loans, including car and housing finance. UBI has also launched specific schemes to woo its retail customers.
Retail credit has the potential to grow even by 50 per cent this year.
The first six months of the fiscal was marked by banks’ access to lower cost deposits, but it was dampened by low credit off-take in the banking system forcing banks to refocus on advances towards retail loans for automobiles, white goods etc.

Foreign banks focus on quality
The foreign banks have done very well in the last six months. The technology, experience and systems of the foreign banks are so fine-tuned that a major cause of lower profits ie bad debts provisioning, could be avoided. However, foreign banks are waiting to see how fast the US gets back its consumer confidence as it is likely to affect sentiment across the globe.

HSBC’s area financial controller, India area management office, Anurag Adlakha told The Financial Express: “HSBC has seen a healthy and steady growth during the six months ending September 2001, and expects this to continue for the coming six months. Clearly, the focus on the retail sector is growing. Consequently, one expects competition intensifying in this sector in the near future. Quality of service will therefore emerge as the key differentiator.”

Both the banks (Standard Chartered and Standard Chartered Grindlays) of the Standard Chartered Group are expecting better performances than last year. There has been growth in all sectors, but remarkably so in its credit card and treasury businesses, since markets have been volatile. Corporate and institutional banking have been by and large flat. The bank’s consumer banking business has not yet felt the impact of the slowdown.

Private banks go retail
Private sector banks are said to be diverting their attention from corporate to retail business and technology. A few private banks like HDFC Bank are also planning to launch credit cards. Debit cards have received substantially good response. Most private banks are launching new products in a bid to give its customers variety.

Said IndusInd Bank’s senior vice president N Suresh Pai: “Retail banking is the ‘in’ thing nowadays and IndusInd Bank has made substantially good progress on the retail front. in the wake of expansion in term of branches, ATM’s and new products to expand its reach to customers, the bank is expecting a fattening of its balance sheet”.

“Deposits and advances also have seen growth in the overall banking scenario but IndusInd Bank advances have grown faster than deposits as we concentrated on quality credit,” Mr Pai added.

“The ample liquidity situation currently prevailing in the banking sector may continue due to poor credit offtake. However, one has to keep a watch on how the situation on the US-Afghanistan front also progresses,” Mr Pai said.