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Q3-FY09 Results Analyses of Indian Banks (Corporation Bank, Central Bank of India and Development Credit Bank)

Keynote Capitals presents the Q3-FY09 results analyses of Indian banks.

The deadline to restructure assets was January 31, 2009 which has been extended to March 31, 2009. All these are one-time measures and would be available tor restructuring packages implemented till June 30, 2009. Further, this treatment will be available to all accounts which were standard on September 1, 2008 and were eligible under restructuring in terms ot the Reserve Bank circulars dated August 27, December 8, 2008 and January 2, 2009.

As per the RBI measures, banks did undertake restructuring ot assets. These are the accounts which are not only non-performing but also standard assets which may foresee risks amid the current financial turmoil. These accounts are dealt on a case-to-case basis and may face difficulty in meeting repayment deadlines and therefore need time for repayment.

Growth in core fee-income slowing down

Even though a few banks reported good numbers in non-interest income, the core fee-income growth has been on a downward trend. This is pertinent in the current environment viz., (i) exporters have suffered, so demand for LCs (letters of credit), bills of collection is poor (ii) products like mutual funds too have been facing pressures.

Lending under pressure; if undertaken, can impact asset quality. Can NPAs escalate?

Most of the banks have maintained a cautious view on lending. Sectors that remained under pressure during Q3-FY09 comprise of Real estate, SMEs, Retail, Auto, textiles and exporters in general.

Treasury gains boost bottom lines

Most of the banks reported better numbers on account of treasury gains.

Signs of tough times ahead...

Currently, there is continual decline in credit growth in the banking industry. In spite of the liquidity released by the RBI, bank credit growth has slowed down. The RBI has restricted the exposures to certain sectors. Segments especially SMEs, retail, export are already facing pressures, with banks restricting lending to them. Bank credit growth has decelerated even as the corporate sector faces challenges in accessing international sources of equity and debt funding. We feel after RBI's warning to banks to reduce lending rates further, pressure on NIMs may increase, going forward. The core-fee income growth also has been subdued. Deterioration in asset quality is likely to lead to higher NPA formation.

For Q4-FY09, focus of the banking industry will be on maintaining NIMs, cautious lending and efficient recoveries of NPAs. The banks which have efficient cost controls, are likely to survive these turbulent times.

...though with a silver lining

In the last 1 year, banking indices have moved in tandem with respective broad market indices. Valuations are low across the entire banking sector. We however, believe that going forward, if credit off-take picks up, along with a drop in NPAs and provisioning, bottomlines of the banking sector may improve. In such scenario, the banking sector may well outperform the overall market going forward.

We analysed Q3-FY09 results of Corporation Bank, Central Bank of India and Development Credit Bank.

To read full review download full version of Q3-FY09 results of Corporation Bank, Central Bank of India and Development Credit Bank.