Toplines shrink for banks on squeeze in fee income

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Holding back of capital expenditure by companies has led to a drop in the growth of fee income of private banks. This has pared their net profits.

Nitin Kumar, analyst at Quant Capital, said profitability of private banks declined as fee income fell sharply after companies stopped making fresh capital expenditure. “With firms borrowing less, banks’ core income is under strain.”

For HDFC Bank, fee income grew by 11.4 per cent in the third quarter over the corresponding period last year. Had capex investments gone on stream, the bank could have posted a higher growth in fee

income. The bank’s net profit grew by 25.1 per cent to Rs 2,325.7 crore, lower than the 27 per cent growth in the second quarter. The margin came from re-pricing about 15 per cent of the loan book, raising of the base rate by 10 basis points, lower provisions due to stable asset quality and a tight leash on expenses.

Paresh Sukhthankar, H­D­FC Bank’s deputy MD, said, “The incremental gr­owth in the loan book was Rs 28,000 crore, aided in part by lending against FCNR deposits.”

Of this, the incremental growth in foreign currency loans was Rs 11,000 crore, retail was Rs 4,000 crore and corporate Rs 13,000 crore.”

With industrial output down 2.1 per cent in November, banks are operating in a very tight environment, especially in dealing with companies with stretched margins. Until three quarters back, HDFC Bank had consistently reported a net profit growth of over 30 per cent.

The next largest private sector lender, Axis Bank, reported a 19 per cent rise in net profit to Rs 1,604 crore in the third quarter. In the preceding quarter it had reported a 21 per cent growth. Growth in other incomes was slow mainly due to a muted growth in fee income.

Provisions were lower, primarily due to the writeback of mark-to-market provisions for investments.

Somnath Sengupta, CFO of Axis Bank, said in a concall after its financial results, “The fee from corporate banking continued to be sluggish and declined by 4 per cent in the third quarter. Fee income from retail businesses at Rs 438 crore contributed 30 per cent of the total fee income. Within this, fee income from retail assets grew 16 per cent year-on-year.”

Kotak Mahindra Bank, India’s fourth largest private sector bank, reported a decrease in its third quarter net profit on higher provisions made for advances and investments. During the quarter net profit declined by 6 per cent to Rs 340 crore. Total revenue, including net interest income, increased by 5 per cent to Rs 2,192 crore.

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