Treasury losses hit Syndicate Bank profits by 60 percent

Tuesday, 29 July 2008, 07:00 Hrs
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Bangalore: A loss of Rs 2.61 billion from treasury operations has lowered the net profit of Syndicate Bank by a whopping 60 percent for the April-June first quarter of fiscal 2008-09, a top bank official said.

"Net profit has declined by 60.2 percent year-on-year (YoY) to Rs 880 million for Q1 from Rs 2.21 billion in the same period a year ago due to depreciation on investments, which declined mark-to-market by Rs 2.61 billion," Syndicate Bank executive director George Joseph told.

As a result of hike in short-term interest rates by 75 basis points to 8.5 percent and cash reserve ratio (CRR) by 125 basis points to 8.75 percent by the Reserve Bank of India, the 10-year government securities (G-Sec) benchmark yield shot up to 8.7 percent from 7.9 percent during the quarter.

"To insulate treasury operations from market volatility and further impact from Tuesday's hike in the repo rate and CRR by 50 and 25 basis points respectively by RBI, we have decided to shift substantial investments (Rs 16.15 billion) to HTM (hold to maturity) from funds available for sale (AFS) and trading," Joseph said.

As a result, of the Rs 269.03 billion budgeted for treasury operations as against Rs 278.41 billion in the same period of last fiscal, funds for HTM have been increased to 209.51 billion (78 percent of the total investment) from Rs 193.36 billion in the same period last fiscal.

Funds of Rs 55.81 billion have been earmarked for AFS against Rs 58.81 billion in the same period last fiscal.

Though the bank's fundamentals were strong, operating profit declined by 6.6 percent YoY to Rs 2.94 billion from Rs 3.15 billion due to loss of interest (Rs 250 million) on 9.04 billion loans waived off under the debt relief package to 366,942 small and marginal farmers, decline in credit off-take and pressure on margins.

"Macro economic factors beyond our control have impacted our margins and overall performance. The latest hike in repo rate and CRR by RBI warrants us to hike the PLR (prime lending rate) from 11.89 percent. We see interest rates moving upwards in the short and medium terms. Even deposit rates will move northwards," Joseph pointed out.

To minimise the impact of depreciation on investments, the bank made a higher provisioning of Rs 2.6 billion.

Net interest margin (NMM) has also declined to 2.25 percent from 2.76 percent in the same period year ago and sequentially by 2.54 percent at the end of previous quarter (January-March). Similarly, net interest income has come down to Rs 5.03 billion from Rs 5.47 billion in the same period year ago.

Capital adequacy ratio (CAR), too, declined to 11.55 percent from 12.62 percent YoY.

Cost of deposits has gone up to 6.91 percent from 6.42 percent YoY. Similarly, net NPA (non-performing assets) ratio has increased to 1.03 percent from 0.82 percent YoY. At the same time, yield on advances remained flat at 10.2 percent YoY.

On the flipside, the bank's global business grew by 17.5 percent YoY 1.6 trillion from 1.3 trillion and domestic business by 19.12 percent to 1.5 trillion from 1.2 trillion.

Total deposits increased by 14 percent to 917 billion from 877 billion, while advances shot up by 23.5 percent YoY to 640 billion from 518 billion. As a result, the CD (credit-deposit) ratio was 70 percent as against 64 percent a year ago.

The bank's total income, which increased by 14 percent YoY to 22.8 billion from 20 billion, was mainly driven by interest income of 21.3 billion against 18.5 billion, an increase of 15.5 percent YoY.
Source: IANS
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