Tides of 31.07.2015

1.  Higher operating expenses, including staff expenses, and lower non-interest income pulled down Bank of Baroda’s (BoB) net profit by 23%  in the first quarter ended June 30, 2015. Net profit in the reporting quarter was at Rs. 1,052 crs ( Rs. 1,362 crs in the year-ago period). The public sector bank’s net interest income nudged up 4 % to Rs. 3,460 crs ( Rs. 3,328 crs). Non-interest income, comprising fee income, treasury income, and recovery in written off accounts, was down 5.60% at Rs. 967 crs ( Rs. 1,025 crs). Operating expenses rose 19 per cent year-on-year to Rs. 2,225 crore. Within the operating expenses, staff expenses were up 22 per cent to Rs. 1,345 crore. Provisions (other than tax) and contingencies increased 14 per cent YoY to Rs. 600 crore. YoY non-performing assets (NPAs) jumped 43 per cent to Rs. 17,274 crore. Fresh slippages were lower at Rs. 1,684 crore ( Rs. 1,881 crore). The quantum of loans restructured was lower at Rs. 147 crore ( Rs. 986 crore).

2.  HDFC Bank expects deposit rates to come down if the RBI cuts interest rates in the upcoming policy on Tuesday. The RBI is due to announce its third Bi-Monthly Monetary Policy 2015-16 on August 4.“If there is a policy cut, it would imply that banks would be induced to try and cut their deposit rates because that is the indication that the cost of money is going to come down.“It’s only when the banks reduce their deposit rates that they can re-calibrate their base rate,” said Paresh Sukthankar, Deputy Managing Director, HDFC Bank.Seeing a 25-50 basis points cut in the policy rate during this fiscal, he added that meaningful movements in base rates would have to follow changes in deposit rates.

3.  The market seems to be breathing a sigh of relief at public sector banks’ better-than-expected performance in the June quarter, compared to the March quarter. The market gave a thumbs-up to Bank of Baroda’s better-than-expected earnings for the June quarter. While BoB reported a 22 per cent decline in June quarter profit against the corresponding quarter last year, the sharp 75 per cent sequential improvement in profit drove up the stock price.This substantial increase in earnings has primarily been led by the sharp fall in provisioning for bad loans.  Earlier this week, Punjab National Bank also found favour with investors due to a marginal improvement in asset quality compared with the previous quarter.  For BoB, gross non-performing assets as a proportion of loans has gone up to 4.13% in the June quarter from 3.72 % in the March quarter. The slippages have gone up to Rs. 1,685 crs from Rs. 1,359 crs in the March quarter.

4.  Kotak Mahindra Bank’s June quarter results include ING Vysya Bank’s earnings, post-merger. While the June quarter numbers are not comparable to that in the previous year or quarter, Kotak Bank’s earnings have come in far lower than market expectations. The 55.8 per cent fall in standalone net profit is a result of certain post-merger expenses.The first is the pension provisioning of Rs. 339 crore on account of ING Vysya Bank.The second is the increase in provision for loans to Rs. 266 crs ( Rs. 66 crs). Kotak has identified 6 per cent of ING Vysya Bank’s funded and non-funded book or 2.5% the combined book as stress.The third expense relates to the integration cost of Rs. 63 crs.Lastly, around Rs. 30 crs is a result of increase in savings deposit rate for ING Vysya’s account holders to 6 per cent.Overall the bank’s loan book has grown 9%, based on the combined loan book of both entities.One of the reasons for the muted growth is the resultant lower loan limits after combining Kotak and ING Vysya’s loan portfolio.Kotak Bank which has maintained good asset quality, saw its gross non-performing assets (GNPAs) increase to 2.3 % of loans from 1.9% last quarter.