An analysis of the first quarter results of the Indian banking Sector (12 top banks covering 61% of total credit) by CARE Research revealed that though the net profit of these banks zoomed by 55.2% y-o-y, adjusted for treasury gains, the net profit declined by 8.1% y-o-y and 25.4% q-o-q.

The analysis further says the overall provisions charged to profit and loss account (excluding tax), decreased by 17.0% y-o-y and 24.7% q-o-q. However, provision for non performing assets (NPAs)NPAs increased by 3.5 times over the previous year.

Also restructuring drives have continued in Q1FY10, the top 12 banks restructured assets worth Rs 32,500 crore.

The aggregate net profit of top 12 banks increased from Rs5,266.7 crore in Q1FY09 to Rs8,175.6 crore in Q1FY10, showing growth of 55.2%.

However, net profit adjusted for treasury gains declined by 8.0% y-o-y and 25.4% q-o-q. Adjusted for treasury gains, six banks showed a negative growth in net profit whereas two banks (IDBI and Central Bank of India) incurred a net loss in Q1FY10.

The net interest margin for banks was under pressure during the quarter ended Jun 2009 due to: substantial portion of deposits were mobilised by the banks in the second and the third quarter of FY09 at the then prevailing fixed deposits rates of 9.5% to 10.5%.

Majority of these deposits will mature at the end of FY10. Therefore interest outgo on these deposits remained high during the quarter.

Slower economic growth affected the incremental credit offtake during the quarter.

Y-o-Y bank credit growth fell to 15.1 % for the month ended on June 2009, the lowest level since March 2004.

The banks especially public sector banks fast forwarded reduction in BPLR which had a negative impact on their margin. Certain portion of the surplus deposits was invested by banks in liquid schemes of mutual funds.

Yield on the same is accounted in other income. The frequency distribution of reduction in BPLRs by banks shows that most public sector banks reduced their BPLR by 200 bps, most private sector banks by 100 bps and most foreign banks by 50-75 bps.