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Indian Banks record varied performance for FY2006    
Industry News
 
Published May 15, 2006

Driven by a buoyant economy, Indian banks recorded strong credit growth for FY2006, but bottom line growth was uneven as net interest margins and capital propositions varied greatly between banks.

A glimpse of the eight major Indian banks that have recently released their financial results for 2006 revealed that the net profit growth ranges widely from negative six percent for Union Bank of India to over 100 percent for Bank of India.

The wide chasm in the banks’ performances seemed at odds with the 30 percent YoY growth in lending recorded by the banking sector. By benchmarking the respective net profit growth, net interest income growth and loan growth of these banks, we have clearly identified NIM movement as the key differentiator of Indian banks’ varied performance.

Banks which were able to maintain the NIM level or even improve it marginally over the last year managed to demonstrate strong net interest income growth in line with their credit expansion. However, banks which failed to do so saw decline in their net interest income growth even though they had above average loan growth. As the underdog, Union Bank of India saw its NIM squeezed by about 30 base points last year, causing its net interest income growth to be nearly 50 percent slower than its loan growth.

The level and movement of NIM mainly reflects banks’ capability in managing the funding costs and pricing of loans. Even with rising deposit rates, UTI and HDFC are better posed to past the costs back to borrowers by hiking the lending rates more aggressively. However, financial regulations have constrained the large state-owned banks to raise lending rates constantly, resulting in pressure on margins.

Another interesting observation is that ICICI Bank achieved 27 percent bottom line growth, but its return on equity (ROE) decreased sharply to 15.6 percent by 4QFY2006 from 19.5 percent of the previous year. This was a result of the bank’s domestic and overseas equity issues during the last quarter to strengthen its capital base which brought down the ROE figure. Similar but less pronounced effects were also found in Bank of Baroda and Union Bank of India, which issued new shares last year. - B. Zhang

The following is some of the highlights for Indian banks’ financial results:

  ICICI Bank Bank of Baroda Union Bank of India Bank of India Oriental Bank of Commerce UTI Bank Canara Bank HDFC Bank
2006 41.9 32.2 23.7 26.3 16.1 10.8 35.8 na
2005  28.4  29.8  20.6  22.4  15.2  7.3  31.5  na
 YoY Growth  47.5%  8.2%  15.0%  17.7%  5.3%  47.5%  13.7%  na
2006  25.4   8.3  6.8  7.0  8.0  4.9  13.4  12.6
2005 20.1 6.8
7.2  3.4  7.6  3.3  11.1  10.4
YoY Growth 26.6% 22.2%  -6.1%  106.1%  5.6%  45.0%  21.1%  21.3%
2006 1461.6 599.1  533.2  666.6  334.3  223.1  794.3  449.9
2005 914.1  434.0  401.1  560.1  253.0  156.0  604.2  360.1
YoY Growth 59.9%  38.0%  32.9%  19.0%  32.1%  43.0%  31.5%  24.9%
2006 2.1%  3.2%  3.0%  2.6%  3.1%  2.6%  3.0%  2.6%
2005 2.1%  3.5%  3.3%  2.6%  3.4%  2.5%  3.1%  2.4%
2006 9.2%  10.6%  7.3%  6.8%  9.0%  10.6%  7.8%  na
2005 7.6%  8.2%  6.1%  7.1%  5.4%  8.2%  7.3%  na
2006 15.6%  12.1%  16.3%  15.2%  18.9%  18.6%  20.2%  30.1%
2005 19.5%  12.6%  21.5%  8.0%  15.3%  18.9%  19.5%  28.5%
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