Corporation Bank has maintained its double digit growth in interest income for the third quarter. However, squeeze in its operating margins and higher operating cost depressed its earnings growth. Compared to a 31% rise recorded in second quarter, the profits growth is reduced to 10% in 3QFY02.
Income from operations
Operating Profit Margin (%)
Provisions and contingencies
Profit before Tax
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (m)
Diluted Earnings per share*
The bank has started lending at sub PLR rates (at 10.5%), which seems to have pressurized its interest margins. Also a rise in cost to income ratio to 37% from 35% in 3QFY01 has resulted in over 380 basis points fall in operating margins. Increase in provisions for non-performing assets further trimmed Corporation Bank's bottomline growth.
Although the bank's core business income grew at a slower rate, other income (from cash management services, forex and gains on G-Sec) continued to grow at a healthy rates. The contribution of other income to total income increased to 17% from 13% in 3QFY01. This revenue stream would help the bank to post full year earnings growth of about 18%.
At the current market price of Rs 119, Corporation Bank is trading at a P/E of 5x and Price/Book value ratio of 0.9x FY02 projected earnings. The bank's core business income is likely to slowdown in the coming quarters with increasing competition from private banks and less lending opportunities available in the market. As a result, profit growth in the fourth quarter is expected to be on the lower side.
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