The Hindu Business Line : Interest income drives Canara Bank net profit

Bangalore, July 25 Canara Bank has reported a net profit of Rs 240.55 crore for the first quarter of the current financial year 2007-08, a 26 per cent jump over the first quarter of FY07.

Briefing reporters on the performance, the Chairman and Managing Director, Mr M.B.N. Rao, said: “Our profits were driven by the 43 per cent rise in interest income in Q1.”

The bank’s gross income was up 36.45 per cent to Rs 3,760.07 crore from Rs 2,755.49 crore. Interest on advances rose to Rs 2,357.98 crore from Rs 1,651.85 crore though this was driven by upward revisions in lending rates.

Mr Rao said: “We have consciously repriced some of our assets in line with the interest rate momentum.”

The repricing allowed the bank to improve its average yield on assets to 10 per cent, a steep increase over 8.59 per cent during Q1 of FY07. This was despite the rebalancing of its asset portfolios with a bias towards farm and small enterprise sectors.

Farm loans posted a growth of 26 per cent at Rs 37,970 crore. Small enterprise advances grew 36 per cent to Rs 15,106 crore, Retail loans growth was down 18 per cent to Rs 17,168 crore, or only 11 per cent of its gross advances.

In the first quarter, gross expenditure rose to Rs 3,148 crore from Rs 2,180.75 crore. The increase was driven by the steep increase in interest costs.

Interest expenditure was Rs 2,485.91 crore, up 59 per cent over Q1 of FY07.

The increase, Mr Rao said was largely on account of the high deposit growth and the higher interest offered on deposits. Deposits were up 16 per cent in Q1 to Rs 1.43 lakh crore.

This pushed up the average cost of working funds to 6.5 per cent for the bank.

Operating profits of the bank during the same period rose to Rs 612.07 crore from Rs 574.74 crore. The bank, though, made high provisions of Rs 372 crore on non-performing assets and taxes.

The net interest margin though was down, despite the improved operating and net profits, to 2.54 per cent.

Mr Rao estimated that the NIMs would average around 2.8 per cent for the whole year.

He said that the bank would have shown higher profits in view of the 49 per cent equity shedding in its mutual fund subsidiary in favour of Robeco of Netherlands.

Centenary deposit

Canara Bank is revisiting its Centenary Deposit scheme this month-end in a bid to contain accretion of high cost deposits.

Mr Rao said: “This deposit was meant for a fixed period and we have received enormous response for the product from customers.”

This product offers 9.5 per cent and 10 per cent interest for normal and senior citizens, respectively for one-year deposits.

He did not specifically indicate whether the deposit rates would be brought down on this product.

But he said, “In the current liquidity scenario, a 50 basis point drop in short-term deposit rates is a possibility.”

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