Most of the banks are likely to report a healthy growth in profits in the financial year 2003-04 on the back of aggressive retail and small and medium enterprise credit push as well as gains from treasury operations.
The year-end yield of 5.16 per cent on the benchmark 10-year paper is expected to help banks register gains on their bond portfolio. Paring of operating costs and lower cost of resources will also substantially contribute to their bottomline.
However, large investment in technology may dent the net profit of the some of the big banks. Analysts see the operating profits of most banks, on an average, increasing by over 30 per cent over the corresponding period of the previous year.
Despite the corporate India refusing to lift bank loans and increasingly raise money from overseas at finer rates, the analysts feel that big banks like State Bank of India, ICICI Bank, Punjab National Bank, HDFC Bank and Canara Bank -- which have been aggressively focussing on retail and SME portfolio -- will post good results. Oriental Bank of Commerce, Corporation Bank and Union Bank of India too are expected to put up a good show.
The banking sector reported a non-food credit growth of Rs 1,19,684 crore (Rs 1196.84 billion) during the year (up to March 19) against Rs 1, 43,992 crore (Rs 1439.92 billion) in the corresponding period of the last year. Overall, the credit growth is Rs 1,06,166 crore (Rs 1061.66 billion) against Rs 1,39,493 crore (Rs 1394.93 billion). The non-food credit actually posted a negative growth of Rs 13,518 crore (Rs 135.18 billion).
However, the percentage of retail loan as part of total advances has gone up substantially adding to the banks' bottomline. The spread (income from advances minus the cost of deposits) on retail loan is much higher than that of corporate loans.
"Banks that have been able to cash in on the retail boom are expected to fare better. The substantial fall in the cost of funds and interest rate will add to the banks' profitability. The cost of funds for IDBI Bank in 2003-04 stood at 4.3 per cent against 5.85 per cent in the corresponding period last fiscal," G V Nageswara Rao, MD & CEO of IDBI Bank said.
"It has been a good year for banks as most of the banks' net interest margins have improved considerably," said a banking analyst with a domestic broking house.
In the financial year 2003-04, the asset quality of banks has improved drastically as the net non-performing assets have dipped sharply on account of huge provisioning.
"Our reliance on treasury income will come down to a great extent. Since the beginning of the fourth quarter, we have received proposals for setting up greenfield power projects, upgradation of ports, and building roads. There is a clear indication that offtake of high yielding advances will improve substantially," V Leeladhar, chairman and managing director, Union Bank of India, said.
Banks' investment in government securities in 2003-04 increased by Rs 1,32,110 crore (Rs 1321.1 billion) as against Rs 1,09,276 crore (Rs 1092.76 billion) last year.
Up to the third quarter ending December 2003, most of the banks registered a healthy profit. For instance, the SBI's net profit as on December 31 stood at Rs 2,821.68 crore (Rs 28.22 billion) up 19.18 per cent against Rs 2,367.45 crore (Rs 23.67 billion).
Among others, the net profit of Bank of Baroda rose by 41.17 per cent to Rs 810.98 crore (Rs 8.11 billion) against Rs 574.44 crore (Rs 5.74 billion); Bank of India posted a net profit of Rs 659.22 crore (Rs 6.59 billion) up 15.96 per cent; Canara Bank registered a net profit of Rs 953.89 crore (Rs 9.54 billion), up 34.15 per cent; and Punjab National Bank posted a net profit of Rs 811.32 crore (Rs 8.11 billion), up 34.84 per cent.
In the private sector, HDFC Bank registered a net profit of Rs 354.78 crore (Rs 3.55 billion), up 30.92 per cent. ICICI Bank's net profit was up 36.06 per cent to Rs 1,181.70 crore (Rs 11.82 billion) against Rs 868 crore (Rs 8.68 billion) in the corresponding period of the last fiscal.