New Delhi, Feb 24 (UNI) There is an old saying that make hay while the sun shines.
The Indian Banking industry has been doing just that--their interest incomes have swelled by an average of 36 per cent in the third quarter (Q3) of the current fiscal, despite a slowdown in credit off take.
But how long and how bright will the sun shine is now a question mark, for interest rates have again started moving Southwards.
In order to suck out excess liquidity from the economic system, RBI in Q3 followed a rather hawkish policy-- keeping interest rates high.
And despite the fact that the Central Bank left all interest rates (Prime Lending Rate, Repo rate and Reverse Repo rate) uncharged in its recent review of the credit policy, banks have started reducing interest rates.
The reasons are not too far to seek. Deposit growth has been rapid resulting in a mismatch between lending and borrowings and globally interest rates have been moving downwards. high interest rate regime being unleashed by the Reserve Bank.
An ASSOCHAM Eco Pulse (AEP) study released here today shows that the interest income of the banking industry rose by average of 36 per cent in Q3 of current fiscal as compared to the 24 per cent increase in the corresponding period of previous financial year.
This is contrary to slowdown in the y-o-y growth in the non-food credit of scheduled commercial banks (as on Jan 4, 2008) from 31.9 per cent in FY07 to 22.2 per cent in current fiscal.
"Although robust growth in income of the banks would help them in ensuring profitability, the Regulator must ensure that the buoyancy in economic activity does not suffer due to restricted credit flow and high borrowing costs," Mr Venugopal M Dhoot, ASSOCHAM President said.
The surge in interest incomes has led the banking sector to record a whopping 40 per cent increase in their total income in the third quarter as compared to 24 per cent growth in the same period of last year.
The AEP analysis is based on the third quarter results of the 13 commercial banks, including six private banks and seven public sector banks.
Private sector banks registered a higher income growth rate as compared to PSBs of the order of 43.5 per cent over and above the 56 per cent growth last year.
The PSBs while lagged behind the private players in income growth, remarkably improved the growth in interest income recording a growth rate of 32.7 per cent as against 14 per cent growth last year.
The interest rates had peaked in Q3, with the Prime Lending Rate touching 13.25 per cent as compared to 11.5 per cent in the corresponding period of the previous year.
Of late, however, some of the largest banks have recently announced 25 basis points cut in their retail lending rates in order to propel credit growth.
Among the major private banks, Centurion Bank of Punjab and HDFC Bank were the best performing banks in terms of their interest income.
Centurion Bank of Punjab's interest income rose by 76 per cent, to Rs 570.66 crore in the Q3 from Rs 323.56 crore in the corresponding period of the previous year. This is over and above 60 per cent registered a year earlier.
HDFC Bank witnessed an increase of 61 per cent in the FY 2007-08 as compared to 49 per cent in the previous fiscal. Its interest income went up to Rs 2,726.9 crore in the third quarter of FY 2007-08 against Rs 1698.93 crore in the previous year.
The other private banks with robust rise in interest incomes were Axis Bank (54.73 per cent), ICICI Bank (41.26 per cent), ING Vysya Bank (32.41 per cent) and IDBI Bank (22.38 per cent).
The PSBs which have outgrown the industry in credit income growth include Vijaya Bank (39.71 per cent), Bank of India (39.61 per cent), State Bank of India (34.09 per cent), Union Bank (32.99 per cent).
The other banks with high growth in interest income were Indian Bank (30.44 per cent), Punjab National Bank (26.63 per cent) and Allahabad Bank (21.34 per cent).
Fee-based income of banks went up by as much as 52 per cent against a low of 24.4 per cent in the third quarter of fiscal 2006-07. An increase in fees and commissions from wealth management, core banking, retail assets and foreign exchange businesses contributed to this growth.
However, total fee-based income of PSBs increased substantially by 60.47 per cent in Q3, 2007-08 as compared to 4.59 per cent a year ago. Also, private banks lagged behind PSBs in terms of fee-based income as they posted an increase of 43.36 per cent this fiscal against 58.62 per cent in the corresponding period previous year.
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