PSU Banks: VRS powers FY02 - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

PSU Banks: VRS powers FY02

Jun 24, 2002

Public sector banks reported a commendable triple digit growth in earnings for the fourth quarter of FY02. Cost control measures initiated by these banks in the previous year added strong gains to their bottomline. We have included five major banks, SBI, Bank of India, Bank of Baroda, Oriental Bank of Commerce and Corporation Bank in our sector study.

(Rs m)4QFY014QFY02ChangeFY01FY02Change
Income from operations 114,793 118,832 3.5% 416,409 463,605 11.3%
Other Income 23,185 24,403 5.3% 61,458 71,268 16.0%
Interest expense 77,713 82,108 5.7% 284,295 319,628 12.4%
Net interest income 37,080 36,723 -1.0% 132,114 143,976 9.0%
Other expenses 47,285 29,762 -37.1% 125,158 112,183 -10.4%
Operating Profit (10,205) 6,961 - 6,956 31,794 357.1%
Operating Profit Margin (%)-8.9%5.9%1.7%6.9%
Provisions and contingencies 4,450 14,904 234.9% 28,097 37,537 33.6%
Profit before Tax8,53016,46193.0%40,31865,52462.5%
Tax 5,701 7,164 25.7% 14,363 24,374 69.7%
Extraordinary items 265 (36)- 265 (36)-
Profit after Tax/(Loss)3,0949,260199.3%26,22041,11456.8%
Net profit margin (%)2.7%7.8%6.3%8.9%
No. of Shares (m) 1,771 1,645 1,772 1,645
Diluted Earnings per share*7.522.515.925.0
P/E Ratio4.5
*(annualised)

PSU banks faced one of the challenging years in FY02, with slowdown in non-food credit demand. Non-food credit growth for the industry at 12%, was the lowest in last five years. Consequently, most PSU banks reported a dip in interest income from advances. Bank of Baroda (BoB) and Oriental Bank of Commerce (OBC) however, outperformed its peers by posting a double digit growth in interest from advances. To negate the impact of less demand from corporates, PSU banks forayed aggressively into retail finance with housing being the major focus area. With access to low cost funds, these banks offered competitive rates for retail finance and increased the proportion of retail assets to total assets. Going forward quality of services provided by these banks and delivery time holds key for success in retail finance market.

With lack of avenues to park their funds, PSU banks increased their investments into government securities. PSU banks in general opted to hold long maturity portfolio and consequently, their income from investments witnessed a healthy growth of 20%. However, as bond prices declined, these banks seem to have booked losses in the fourth quarter, which is reflected in a marginal 5% rise in their fee-based income. Also, in the current fiscal, their interest income from investments may not grow at higher rates, as incremental investments into G-Sec paper is likely to be at around 8-9%.

Income breakup
(Rs m)FY01FY02Change
Interest on advances 193,470 198,286 2.5%
Income from investments 173,714 209,194 20.4%
Interest on balance with RBI 28,615 40,050 40.0%
Others 20,609 16,075 -22.0%
Total 416,408 463,605 11.3%

PSU banks successfully reduced their cost to income ratio to 52% in FY02 (65% in Fy01) through VRS and gradual improvement in technology. Most of these banks have computerized over 75% of their business and are planning to implement core banking solutions in the current fiscal. Cost to income ratio is expected to come down further as these banks improve productivity (by going for second round of VRS) and upgrade technology. Significant reduction in employee cost fueled operating margins of the sector to 7%, which is otherwise under pressure due to more than proportionate rise in interest cost.

Currently, PSU banking sector is trading at a P/E of 4.5x FY02 earnings and price to book value (PBV) ratio of 0.8. However, after adjusting for net-non performing assets, PBV ratio is expected to be in the range of 1.5 to 2x. Over the last three months, PSU banking stocks, save for Corporation Bank and SBI witnessed good buying interest. FY03 could be another strong year for the sector if credit demand remains buoyant through out the year. Considering a revival in commodity prices and improvement in demand from small corporate borrowers, FY03 could be relatively better year in terms of increase in interest income.

Equitymaster requests your view! Post a comment on "PSU Banks: VRS powers FY02 ". Click here!

  

More Views on News

Union Bank of India Swings to Profit as Asset Quality Improves (Views On News)

Jun 8, 2021

Union Bank's share price up 2% post March quarter earnings.

PNB Reports Profit in March Quarter After Three-Way Amalgamation (Views On News)

Jun 8, 2021

Shares of PNB fell over 2% yesterday despite healthy quarterly results.

Bank of Baroda Shares Plunge 5% After Reporting Huge Loss (Views On News)

May 31, 2021

The stock fell after the bank posted a loss due to higher tax expenses.

India's Largest Bank, SBI Posts Record Profit in Q4 (Views On News)

May 22, 2021

All you need to know about the bank's latest financial results.

How Did Canara Bank Perform in Q4FY21? (Views On News)

May 19, 2021

Key takeaways from Canara Bank Q4FY21 results.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

ORIENTAL BANK SHARE PRICE


Mar 20, 2020 (Close)

TRACK ORIENTAL BANK

  • Track your investment in ORIENTAL BANK with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

ORIENTAL BANK - DHANLAXMI BANK COMPARISON

COMPARE ORIENTAL BANK WITH

MARKET STATS