Higher interest income and lower provisioning helped IDBI Bank report a 20 per cent increase in net profit at Rs 516 crore in the July-September 2011 quarter, against Rs 429 crore in the corresponding quarter last year.
While interest earned increased by 28 per cent to Rs 5,812 crore (Rs 4,534 crore in the July-September 2010 period), non-interest income was down 10 per cent to Rs 479 crore (Rs 535 crore).
The tighter interest rate cycle led to interest expenditure rising by 38 per cent to Rs 4,690 crore (Rs 3,409 crore).
The bank managed to bring down operating expenditure by 8 per cent to Rs 595 crore (Rs 635 crore) mainly on account of lower employee costs.
Lower NIM
With deposit rates rising faster than lending rates, the public sector bank's net interest margin nudged lower to 2.1 per cent, against 2.26 per cent in reporting quarter last year.
NIM is the difference between a bank's earnings on loans and other assets and interest paid on borrowed funds divided by the average amount of assets.
In the rising interest rate regime when low cost savings bank and current account deposits are getting converted into fixed deposits, defending NIMs at the current level will be a big challenge, said Mr P. Sitaram, Chief Financial Officer, IDBI Bank.
“Our objective is to achieve a 15 per cent year-on-year growth in business and have a NIM of 2.15 per cent by the end of the financial year,” he said.
In the reporting period, the bank's bad loans portfolio increased by Rs 600 crore to Rs 3,889 crore.
With the credit cycle getting elongated and interest rates rising, bad loans increased in the large corporate, mid-corporate, SME and agriculture segments, explained Mr Sitaram.
The bank made lower provisioning of Rs 183 crore (Rs 319 crore) towards bad loans. The provisioning towards depreciation in investments was Rs 111 crore (Rs 86 crore).
In the half-year ended September 30, 2011, the bank reported 25 per cent increase in net profit at Rs 851 crore (Rs 680 crore).
The bank's equity share closed 2.06 per cent lower on the BSE at Rs 104.80, against the previous close of Rs 107.