Private banks outperform PSBs in profitability

Private banks have outperformed public sector banks in the second quarter in terms of profitability, according to an FE analysis.

Private sector banks showed an increase of 30.4% in net profit against an increase of 20.3% reported by public sector banks (PSBs) in July-September this year.

A comparison between 23 PSBs operating in the country and 13 major private banks shows private banks performed better in terms of profitability during July-September 2010 compared to the same period in 2009. Angeltrade analyst Vaibhav Agrawal said,?Non-performing assets (NPA) of private banks have started coming down quite sharply where as in the case of most PSU banks NPAs are still quite high.?

In the case of private sector banks, net profit to total income ratio at the aggregate level showed a sharper increase in July-September quarter 2010 as against the same period previous year while the ratio increased only marginally for PSBs. The aggregate total income of 13 private sector banks have increased from Rs 24,104 crore in July-September 2009 to Rs 26,596 crore in July-September 2010. Their total net profit has increased to Rs 3,976 crore in July-September 2010 from the level of Rs 3,049 crore in July-September 2009, increasing the net profit to total income ratio from 12.65% to 14.95%. Highest increase in the net for second quarter was registered in the case of Karnataka Bank followed by IndusInd Bank and YES Bank.

The huge rise in the bottom line figures of IndusInd Bank can be attributed to the surge in interest earnings. IndusInd Bank MD Romesh Sobti said,? The strong growth in interest income aided the profit growth and also margin expansion.?

PSBs, on the other hand, appeared less concerned about profitability. Their total income increased from Rs 61,695 crore to Rs 70,875 crore during July-September 2010, and the net profit has increased to Rs 8,138 crore during July-September 2010 from Rs 6,766 crore during July-September 2009. While the profitability ratio marginally increased from 10.97% to 11.48% during the same period.

Among PSBs, highest increase in net profit in Q2 was seen in the case of Bank of India followed by IDBI Bank and Bank of Baroda. Significant increase in the ratio was also seen in the case of Bank of India. In IDBI Bank, the ratio increased significantly from 5.92% to 8.46% in Q2 2010. In Union Bank, the ratio significantly decreased from 13.43% to 6.80% during the period.

Top three PSBs in terms of profitability ratio are Bank of Baroda, Canara Bank and Indian Bank. Top three private banks in terms of profitability ratio in July-Sept are Kotak Mahindra Bank, J&K Bank and YES Bank.

One interesting thing is that all private sector banks except four showed an increase in the profitability ratio in July-Sept quarter while 60% of PSBs showed an increase in the net profit to total income ratio during the same period.