Corporation Bank, one of the premier public sector banks, recorded better than expected financial performance during the first half of the current fiscal. The bank’s earnings rose by 28%, on over 41% growth in the other income.
The bank is aggressively working towards enhancing its other income base. After signing a deal with LIC, in December 2001, it has entered into a strategic alliance with New India Assurance Co. (the No. 1 general insurance company) for marketing its insurance products. As part of this deal, the bank will plan and implement effective cash flow management for New India Assurance and allow the policyholders to use the bank’s ATMs for payment of premium.
Besides availing normal banking services, New India Assurance will avail the specialized services of the payment-processing centre of the bank in effecting payments in respect of claims. It will also consider bidding for government securities through CorpBank Securities, a wholly owned subsidiary of the bank.
On the other hand New India Assurance has also agreed to provide a space in their premises for housing the branches and ATMs of Corporation Bank. This will enhance the reach of the bank and it will also have access to the business from the policyholders, staff and agents of New India Assurance.
The bank’s constant endeavour to enhance the revenue base is expected to fuel its third quarter profits. Although, its operating margins are likely to come under pressure, profits growth is expected to be over 20% boosted by higher other income.
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Corporation Bank was one of the first banks to lend at sub PLR rates. This would lower the bank’s average yield on advances towards the year-end. Also, with good liquidity in the banking system and less lending opportunities, the bank has parked relatively higher amount of its funds in government securities. Volatility in G-Sec prices could impact its earnings to an extent in the short-term. Income from sale of investments accounted for 36% of other income and 6% of total income in 1HFY02 and most part of these gains were from trading in debt market.
The stock trades at a P/E of 5x and Price/Book value ratio of 1x, FY02 projected earnings. The bank’s valuations are comparatively lower than leading private sector banks due to its slow move towards technology implementation. Corporation Bank is yet to start Internet banking and network ATMs.
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