Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Private Banks: Operating profits hit - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 13, 2002

    Private Banks: Operating profits hit

    The private banking sector reported stellar performance during the December quarter of FY02. Income from operations grew at a strong rate of 30% and profits excluding provisions doubled during the quarter. We have covered five major private sector banks - HDFC Bank, ICICI Bank, Global Trust Bank (GTB), UTI Bank and IDBI Bank in our sector study.

    (Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
    Income from operations 12,143 15,802 30.1% 34,293 44,941 31.0%
    Other Income 2,097 4,496 114.4% 4,922 11,836 140.5%
    Interest expense 8,891 11,498 29.3% 24,841 33,058 33.1%
    Net interest income 3,251 4,304 32.4% 9,452 11,883 25.7%
    Other expenses 2,751 3,943 43.4% 7,122 10,952 53.8%
    Operating Profit 501 361 -28.0% 2,331 931 -60.0%
    Operating Profit Margin (%) 4.1% 2.3%   6.8% 2.1%  
    Provisions and contingencies 285 1,943 580.8% 1,469 4,313 193.5%
    Profit before Tax 2,313 2,914 26.0% 5,784 8,455 46.2%
    Tax 732 923 26.2% 1,526 2,675 75.3%
    Profit after Tax/(Loss) 1,581 1,991 25.9% 4,258 5,780 35.7%
    Net profit margin (%) 13.0% 12.6%   12.4% 12.9%  
    No. of Shares (m) 833.4 941.4   833.4 941.4  
    Diluted Earnings per share* 6.7 8.5   6.0 8.2  
    P/E Ratio   13.4     13.9  

    Except Global Trust Bank all other private banks covered in our sector study posted a healthy growth in interest income. GTB's core business income declined by 14% and profits dropped by 74% in the third quarter on the back of erosion in operating margins and a sharp rise in non-performing assets (NPAs) provisions. The bank is facing challenging business conditions.

    The sector's income from operations' growth was driven by higher income from investments. Save for IDBI Bank, all other banks reported a relatively better growth in investment income. With softer interest rates, bond prices soared up and banks opted to lock in profits on government securities held by them. This was reflected from a triple digits rise in other income figure. The proportion of other income to total income increased to 22% during the quarter from a mere 15% in the corresponding previous quarter.

    Despite a sterling growth in income, the sector's operating profits took a hit and declined by 28%. Pressure on interest margins and higher operating expenses depressed operating profit growth of the sector. HDFC Bank and ICICI Bank in particular witnessed a more than proportionate rise in interest cost. Even though cost to income ratio of private banking sector declined to 45% from 51% in 3QFY01, it still stands on the higher side compared to growth in total income.

    All private banks increased provisioning amount for non-performing assets substantially in the third quarter. This could be to increase the NPA coverage. Also, slowing industrial activity could have contributed to rise in this figure. Effective tax rate at 31.7% remained constant in 3QFY02. A significant rise in provision figure contributed in lowering the earnings growth of the sector.

    Private banking sector gets a P/E multiple of 14x 9m FY02 earnings at current valuations. This is significantly higher compared to a valuation of 4x accorded to PSU banking sector. Private banking sector has been opened up for foreign investment with increase in FDI limit to 49%. This fueled stock prices of most banks in the sector in expectations of a strategic stake sale by these banks.



    Equitymaster requests your view! Post a comment on "Private Banks: Operating profits hit". Click here!


    More Views on News

    IDFC Bank: Strong Trading Income Shields Credit Slowdown (Quarterly Results Update - Detailed)

    Aug 10, 2017

    IDFC Bank is taking steps to address contracting NIMs and successfully transition in to a retail bank.

    ICICI Bank: Loan Slippages Trending Downwards (Quarterly Results Update - Detailed)

    Aug 10, 2017

    Asset quality will be the key thing to watch out for going forward.

    Axis Bank: Outside Watchlist Slippages a Big Worry (Quarterly Results Update - Detailed)

    Jul 31, 2017

    Almost 74% of the watchlist as provided by the bank of Rs 226 billion in FY16 has turned into non-performing assets.

    Should You Take SBI Chief's Advice and Load up on SBI Shares? (The 5 Minute Wrapup)

    Jul 6, 2017

    Does the stock score on the value versus price equation?

    AU Small Finance Bank Ltd. (IPO)

    Jun 27, 2017

    Should one subscribe to the IPO of AU Small Finance Bank Ltd?

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 22, 2017 10:01 AM