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GTB: Lacking trust - Views on News from Equitymaster
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  • Nov 2, 2001

    GTB: Lacking trust

    Global Trust Bank (GTB) is facing one of the toughest times. The bank's profits dropped sharply by 84% and interest income fell by 18%. A huge drop in operating margins affected overall performance of the bank in the September quarter.

    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Interest Income 2,291 1,890 -17.5% 4,430 3,894 -12.1%
    Other Income (9) 468 - 445 1,073 141.0%
    Interest Expenditure 1,625 1,694 4.3% 3,149 3,462 9.9%
    Operating Profit (EBDIT) 666 196 -70.6% 1,281 432 -66.3%
    Operating Profit Margin (%) 29.1% 10.4%   28.9% 11.1%  
    Other Expenditure 356 462 29.9% 789 844 7.0%
    Profit before Tax 302 202 -33.2% 938 661 -29.5%
    Provisions & contingencies (39) 169 - 94 449 378.0%
    Tax 26 (16) - 158 0 -99.7%
    Profit after Tax/(Loss) 314 49 -84.4% 686 212 -69.1%
    Net profit margin (%) 13.7% 2.6%   15.5% 5.4%  
    No. of Shares (eoy) 121.4 121.4   121.4 121.4  
    Diluted Earnings per share* 10.4 1.6   11.3 3.5  
    P/E (at current price)   13     6  

    The bank's revenues from core business of lending declined by 16% in the first half of the year. GTB's alleged involvement in the stock market activity cast a shadow on its business and resulted in high cost of funds for the bank. To attract the depositors, the bank offers relatively higher interest on deposits compared to other banks. (GTB offers interest rate of 9.25% for deposits above 1 year, compared to around 8%-8.5% for other private sector banks).

    Higher cost of borrowings resulted in a heavy shrinkage in operating margins to 11% in 1HFY02 compared to 29% in the corresponding period of the previous year. The bank's provisions for non-performing assets (NPA) too increased by 5 times in the first half and cost to income ratio increased to 56% (from 46% in 1HFY01). The overall performance of the bank has been impacted from all sides. The bank which was once among the top private sector banks in India is caught in in a rut of its own making.

    Break-up of interest income
    (Rs m) 2QFY01 2QFY02 Change 2QFY01 2QFY02 Change
    Interest on advances 1,373 1,047 -23.7% 2,590 2,177 -15.9%
    Income from investments 858 816 -5.0% 1,726 1,644 -4.7%
    Interest on balance with RBI 49 29 -40.5% 102 61 -40.1%
    Others 11 (2) -122.6% 12 12 -3.4%
    Total 2,291 1,890 -17.5% 4,430 3,894 -12.1%

    At the current market price of Rs 21 GTB is trading at a P/E of 6 times its 1HFY02 annualised earnings and Price/Book value ratio of 0.4x. Although, the bank is adequately geared in terms of capital (CAR of 14.6%), the business growth is drying away. Lack of confidence on the management is also impacting its valuations.



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