Increase in cost of deposits and higher provisions impacted Bank of India's net profit in the April-June 2011 quarter.
The bank's net profit at Rs 517.50 crore in the quarter under review was 29 per cent lower compared with Rs 725 crore it reported in the corresponding period last year.
“The elevated cost of deposits adversely affected the net interest margin, resulting in lower profitability. Further, with the bank moving to the system driven recognition of non-performing assets, bad loans increased and impacted profits,” said Mr Alok K Misra, Chairman and Managing Director.
In the reporting quarter, the bank's cost of deposits jumped by 122 basis points (100 basis points equals 1 per cent) to 6.01 per cent (4.79 per cent in the April-June 2010 quarter).
With the deposit rates going up and NPAs increasing, the net interest margin (difference between interest income and interest expended, relative to the amount of assets) declined to 2.19 per cent (2.89 per cent).
According to Mr Misra, the bank will increase NIM to 2.50 per cent by growing low-cost current account and savings account deposits and focussing on asset quality.
Gross NPAs increased by 21 per cent to Rs 5,791 crore as on June-end 2011 (Rs 4,795 crore as on June-end 2010).
During the quarter, 12 restructured accounts (Rs 1 crore and above) aggregating Rs 3,59.1 crore in the infrastructure, agriculture, engineering and steel sectors slipped into the NPA category.
Infrastructure projects, especially road projects, and real estate accounts are vulnerable to slippage due to high interest rates, said the BoI chief.
The bank has recognised NPA status of all accounts up to Rs 5 lakhs through the core banking system and this covers 90 per cent of the total advances. The remaining accounts will be covered by September-end 2011.
Bank officials said NPAs will also show up in the second quarter once the balance 10 per cent of the advances are covered by the system driven recognition of NPAs.
Overall, the bank's provisioning increased by 28 per cent to Rs 878.4 crore (Rs 685.4 crore).
The bank has pegged down credit and deposit growth targets for FY2012. It will now aim at a credit growth of 20 per cent (21-22 per cent earlier) and deposit growth of 17 per cent (20-21 per cent).
BoI will need to raise Rs 4,500 crore over the next two years to fund its expansion plans, said Mr Misra.