Bad debt takes toll on OBC, IDBI Bank earnings

Photo: Pradeep Gaur/Mint

Remya nair : Anup Roy : Mint :30 Oct 2013

Oriental Bank of Commerce reported a 17% fall in profit to Rs.251 cr, and IDBI Bank’s profit dropped 60% to Rs.192 cr

Delhi/Mumbai: Two state-owned banks that declared their results on Wednesday saw a sharp decline in net profits—caused by rising bad debt and falling treasury income.

Delhi-based Oriental Bank of Commerce (OBC) reported a 17% fall in net profit to Rs.251.41 crore for the second quarter of 2013-14 as provisioning for bad debt and measures by the Reserve Bank of India (RBI) to curb the rupee’s volatility in July impacted income.

Net interest income rose 10.7% during the quarter, though non-interest income contracted 23% due to a sharp fall in treasury income.

OBC booked a treasury loss of Rs.16.86 crore for the three months ended September. It had posted a profit of Rs.51.92 crore in the corresponding year-ago period.

Net interest margin, a key measure of profitability, increased to 2.84% from 2.79%.

But asset quality continued to remain a worry, with gross non-performing assets increasing to 3.77% from 2.92% in the year-ago period. Net bad loans increased to 2.69% from 2.04%.

“The pressure on asset quality has continued. Banks were hoping that the economy has bottomed out. Till the economy does not revive, it will be a challenge for banks to rein in bad debts,” chairman and managing directorS.L. Bansal said.

The bank made a provision of Rs.332 crore for bad loans in the quarter as against Rs.301.02 crore in the year-ago period. Advances grew 9.2% and deposits 6.7%.

Bansal said the bank will not look to grow its advances book at the cost of asset quality. “We will look to consolidate during this period,” he said, adding that clearances of projects by the cabinet committee on investments is yet to translate into actual corporate credit demand.

The bank, which has received Rs.150 crore from the government as capital infusion, has no plans for additional fund-raising through a qualified institutional placement, Bansal said. It also has no plans for raising its lending or deposit rates at present.

Mumbai based IDBI Bank Ltd’s second-quarter profit dropped 60% toRs.192.27 crore from Rs.483.53 crore in the year-ago period, dragged down by heavy provisions to provide for bad debts and sharp fall in treasury income, the bank said in a statement. Total income increased to Rs.7,114.4 crore fromRs.6,880.01 crore a year ago. Provisions surged 78% to Rs.878.72 crore fromRs.494.58 crore in the year-ago period to take care of the bad debt, which stood at 4.98% of its advances against 3.45% a year earlier.

Shares of OBC fell 4.10% to Rs.153.25 on BSE on Wednesday and IDBI Bank’s scrip fell 3.94% to Rs.65.90, while the benchmark Sensex rose 0.5% to 21,033.97 points. “The managements of both the banks have indicated that the stress on the asset quality is likely to continue for at least two more quarters due to the economic situation. Till growth does not pick up, the situation is unlikely to improve on its own,” said Vaibhav Agrawal, an analyst with Angel Broking Ltd. “This is true of the banking sector as a whole as well,” he added.