With the economy firmly on a growth path, the banking sector is showing robust growth, with several banks, both in the public and private sector, posting substantial growth in profit figures.

Among public sector banks, Oriental Bank of Commerce registered one of the highest percentage increase year-over-year in net profits for the quarter ended June 30, 2010, with 41 per cent growth to Rs 363 crore, against Rs 257 crore in the same quarter in the previous year.

The larger government-owned banks, such as Punjab National Bank (PNB), Union Bank of India and Bank of Baroda (BoB), have not done too badly either.

PNB has recorded a year-on-year growth of 28.4 per cent in net profit for the first quarter of the present financial year to Rs 1,068.29 crore, against Rs 832.05 crore in the previous year. Operation profit of the bank grew by 33.7 per cent during the period to Rs 2,098.17 crore. Union Bank of India registered a net profit growth of 33.97 per cent to Rs 601 crore, against Rs 442 crore in the same quarter in the previous year. Its operating profits increased by 32.5 per cent to Rs 1,043 crore.

Bank of Baroda, on the other hand, has shown a 25.4 per cent rise in net profit to Rs 859.2 crore during Q1 this financial year compared with Rs 685.4 crore in the same period the previous year. The lender’s operating profit grew by 51.3 per cent to Rs 1,527.87 crore. Chennai-based India Bank showed a 11 per cent growth in net profit to Rs 368.15 crore during the quarter from Rs 331.66 crore.

Private banks shine

The private sector banks, including HDFC Bank, Kotak Mahindra Bank and Yes Bank, which have announced results have also shown decent increase in net profit. HDFC Bank earned a net profit of Rs 811.7 crore, an increase of 33.9 per cent over the corresponding quarter ended June 30, 2009. The bank’s profit before tax increased by 38.8 per cent to Rs. 1,193.7 crore.

On a consolidated basis, Kotak Mah­indra Bank reported a 27.23 per cent growth in net profit to Rs 327.93 crore from Rs 257.28 crore. On a standalone basis, net profit of the bank rose to Rs 187 crore from Rs 90 crore in the year-ago period. Yes Bank reported 56.3 per cent rise in net profit in the June quarter to Rs 156.40 crore from Rs 100.10 crore in same period last year.

Robust loan growth

The healthy growth trend in the performance was largely due to buoyancy in credit operations. Bank of Baroda registered a growth in total advances by 30.7 per cent to Rs 1,85,595 crore in Q1, while total deposits increased by 28.2 per cent Rs 254,668 crore.

Union Bank advances reached Rs 120858 crore as on June 30, 10, registering a year-over-year increase of 28.57 per cent. PNB’s advances grew by 24.6 per cent year-over-year during the first quarter to Rs 1,96,870 crore, against Rs 157,979 crore in the previous year.

Among private sector banks, Yes Bank reported 107 per cent growth in credit year-over-year to Rs 26,256 crore, while sequentially it grew 18 per cent over the March quarter.

Corporate and institutional banking continued to be the single biggest growth driver for the bank with almost 73.4 per cent of the business coming from this division. Commercial and branch banking accounted 22 per cent and 4.5 per cent towards loan growth. Corporate and commercial advances of Chennai-based India Bank increased by 39.26 per cent from Rs 25,106 crore to Rs 34,963 crore.

Retail push

While corporate loans have been picking up, retail credit portfolio of banks have also seen substantial growth during the quarter ended June 30, 2010.

Union Bank’s retail lending portfolio rose by 36 per cent from Rs 10,554 crore during the quarter to Rs 14,359 crore, while BoB registered an increase of 23.6 per cent to Rs 24,994 crore.

PNB’s total retail loans increased by 17.44 per cent to Rs 19,444 crore during Q1, compared with Rs 16,555 crore in the previous year. Among the private sector banks, HDFC Bank’s retail loan grew by 24.4 per cent over June 30, 2009 to Rs 76,068 crore and accounted for 51.5 per cent of gross advances, while Kotak Mahindra Bank’s retail loan book has grown to Rs 1,350 crore during the June quarter of 2010-11.

With retail banking gaining importance in the industry, Yes Bank, which has been slow to take off on the retail front, is now looking at increasing its retail loan book to around 10 per cent during this financial year . The bank’s and small and medium enterprises (SME) loan book presently accounts for barely 1 per cent of total lending.

T M Bhasin, chairman and managing director, Indian Bank, told Financial Chronicle, that going forward, banks are likely to increase focus on the retail portfolio. “Retail lending is gaining greater importance in the banking industry. Indian Bank is planning to provide a major push to its retail loans portfolio,” Bhasin said. Indian Bank registered 10.02 per cent growth in retail loan during the quarter to Rs 11,006 crore compared to Rs 10,004 in the quarter ended June 30, 2009.

Asset quality worries

While pushing ahead with growing their business, banks may be having a slight worry on the bad debt front, with major public sector banks showing an increase in non-performing assets (NPAs).

While, Bank of Baroda showed slight worsening of its asset quality with gross NPAs moving from Rs 2068.15 crore to Rs 2657.4 crore, Union Bank’s gross NPAs also showed slippage from Rs 1,874 crore in the first quarter of 2009 to Rs 2,736 crore in the quarter ended June 30, 2010.

PNB’s gross NPA increased from 1.64 per cent of total advances to 1.82 per cent, while net NPA rose from 0.19 per cent to 0.66 per cent during the first quarter compared with the same period the previous year However, private sector HDFC Bank bucked the trend. HDFC Bank’s gross NPA as of June 30, 2010, stood at 1.2 per cent of gross advances, against 2.1 per cent in the previous year.

Positive outlook

Bankers said that going forward, the outlook for the industry remains positive with the likelihood of a strong growth in credit demand. T Y Prabhu, chairman and managing director, Oriental Bank of Commerce, said the bank had a strong credit pipeline. “There are about

Rs 8,000-10,000 crore loan sanctions at various stages mostly related to the infrastructure sector. Once the credit demand picks up, disbursals would start taking place,” Prabhu said.

Incidentally, the quarter that saw the shift over of the banking system to the base rate system from July 1. The Reserve Bank of India also raised its lending rates three times during the quarter. Punjab National Bank’s chairman and managing director K R Kamath hoped to carry forward the trend in credit and deposit growth for the full year. “We expect business growth to remain strong. For the full year, we are projecting credit growth of 22 per cent and a 20 per cent growth in deposits,” Kamath said.

Stock performance

Standard & Poor's credit analyst Geeta Chugh in a report said, “A robust economy, along with a stable retail deposit base and a prudent regulatory environment, has underscored the resilience of India's banking sector to the global financial slowdown. We expect credit growth of about 20 per cent in the next financial year.”

Year-to-date, banking stocks have jumped as much as 67 per cent, against the benchmark BSE Bankex, which jumped 14.15 per cent during the same period. Small banks led the gainers. UCO Bank, Bank of Baroda, Federal Bank and IndusInd Bank have surged 66.37 per cent, 47.28 per cent, 47.10 per cent and 43.51 per cent, respectively. Private players Axis Bank, HDFC Bank, Yes Bank and ICICI Bank have gained 36.08 per cent, 25.11 per cent, 10.33 per cent and 3.28 per cent, respectively.

Banks such as Canara Bank, Dena Bank and Punjab National Bank climbed 22.44 per cent, 18.74 per cent and 17.88 per cent, respectively. Indian largest lender, State Bank of India returned 10.33 per cent, while IDBI Bank and Kotak Mahindra Bank dropped 6.59 per cent and 4.10 per cent, respectively.



(With inputs from Amit Mudgill)