Bank of India Q1: Slow Credit Growth, High Costs Reduce BoI Profits

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Mumbai 🙁BoI) Net income declined year-on-year due to weak loan portfolio growth, which affected profitability along with increased provisions.

Net income fell 15 percent to Rs 720 crores in the quarter ended June 2021 from Rs 844 crores a year earlier as the bank’s loan portfolio shrank 0.18 percent to Rs 4.14 crores. Restrained credit growth affects both the net interest margin (NIM), as well as net interest income (NII) in the form of deposits growth by 5 percent outstripping credit growth.

The net interest margin, or the difference between the yield earned on loans and income paid on deposits, fell to 2.16 percent from 2.48 percent a year ago as yield on advances fell 88 basis points year over year. One basis point is equal to 0.01 percentage points.

The net interest rate decreased by 10% also due to the slow growth of bank loans, mainly due to the fact that corporate loans remained at the same level, while loans to retail customers, agriculture, as well as micro and small and small businesses (RAM) grew by 11%.

CEO AK Das said the bank expects 6 to 7 percent growth on the back of a 14 percent increase in RAM loans.

“We have already lost Rs 16,000 crore in deposits during the quarter. As the revaluation of these deposits and the growth of loans continue to grow, we expect things to be better. We expect our NIM to rise to 2.50% this year, ”Das said.

High reserves and operating expenses also pushed profit margins. NPA provisions increased by 14 percent to Rs 873 crores from Rs 767 crores a year ago. Operating expenses rose 16% to Rs 2,715 crore as the bank allocated salaries and also set aside 20 lakhs for every deceased employee who died due to the Covid 19 virus.

Das, however, argued that by the end of the fiscal year, the bank will reach its target of 12% net defaults, up from 13.51% reported at the end of June.

Slippage of Rs 3,942 crores during the quarter included Rs 1,600 crores from MSMEs, which were hit hard by supply and demand disruptions resulting from the pandemic.

PR Executive Director Rajagopal said MSMEs suffered the most damage, but the situation will improve by the end of 2021.

“MSMEs suffered the maximum damage. According to a study by CII-MSME, about 35% closed because they could not continue the business. But as the economy opens up, we expect things to get better by the December quarter, ”he said.

The bank has outstanding restructured loans of Rs 5,963 crores under the first RBI window and has so far restructured loans of Rs 5,299 crores under the second window, which closes at the end of September.

The growth in other income helped the bank during the quarter. Other income rose 39% to Rs 2,377 crores, mainly due to the reimbursement of Rs 406 crores from the written off aviation account, as well as an increase in income from foreign exchange.

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