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Banks’ profitability may dip

Banks are expected to witness a dip in their profitability over the next two quarters due to shrinkage in margins and a fall in their treasury income, reports Sandeep Singh.

india Updated: Feb 23, 2009 23:23 IST
Sandeep Singh

Banks are expected to witness a dip in their profitability over the next two quarters due to shrinkage in margins and a fall in their treasury income. This is after they witnessed rise in their revenues and profits by 33 and 35 per cent, respectively in the troubled quarter ended December 2008, with the steep jump in treasury income.

“Banks will feel the pinch of keeping cash — lending is slow and they raised deposits at high rates over the past six months,” said CJ George, managing director, Geojit Securities. “Their high treasury income will also see a dip.”

Treasury income was a major contributor to their performance. “Banks have benefited from the fall in bond yields that came down by 400 basis points,” said Pankaj Pandey, head of research, ICICIdirect.

This is expected to fall. “The treasury income for banks would be low and for banks that have traded their bonds will see higher fall,” said Mohan Shenoy, head treasury, Kotak Mahindra Bank.

Other bankers too feel the effect to be very bank-specific.

“Banks SLR portfolio is huge and they might still have some profits left in their holding,” said Ashish Parthasarthy, deputy treasurer, HDFC Bank.

Along with this, industry experts feel that high rates at which banks raised deposits over the past six months will impact their margin. However, the bankers maintain that the impact won’t be huge. “Deposit rates are coming down and there has been an increase in current and saving accounts of banks,” said Parthasarthy.

Rise in non-performing assets is another concern. The NPAs for the 39 banks rose by 23 per cent in last quarter.

“Delinquency in retail loans, especially unsecured loans, will rise further as the GDP growth comes down,” said Amitabh Chakraborty, president equity, Religare Enterprises.

While bankers maintain that the impact of these would be specific to banks, these factors are expected to keep the banks on their toes to meet up with investor’s expectations.