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Tuesday, May 10, 2011

High interest rates hit bank's profitability

Consecutive policy rate hikes since last year, dented banks profitability severely.
Despite doing more sales turnover, top line of many banks has deteriorated.
Whether  BOI, PSB or BOM, all had decline in the operating profit on QOQ (Quarter on Quarter) basis. Out of these BOI came out with increase in bottom line due to lesser provisioning than last year.
Andhra Bank and PNB were among the few, who managed to have increment in both top and bottom lines.
It is interesting to know despite this, all banks were successful in reducing their NPAs (Non Performing Asset) in this rising interest rate scenario
During high tax regime, companies defer their capex plans which results in the reduction of credit growth. Apart From this, banks find it difficult to pass the higher interest rate completely to their customers, and this reduces theirr NIM (Net Interest Margin), and  profitability is affected.

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