ICICI Bank, India’s second-largest lender two years ago had stopped giving auto loans due to rise in defaults but now it is planning to do aggressive lending in the car and truck loans segment. This time bank will not give loans through sales agent in favor of auto dealers. Bank is targeting car and truck dealers with an aim to revive auto loans, although it is going cautioned on financing two-wheelers. Recently a pan-India meet of over 180 car dealers was organized by the bank to discuss this issue.
A senior auto industry executive of ICICI bank said, “ICICI Bank will lend much more now that will bring incremental growth to the passenger-car industry.” Previously, three years ago ICICI Bank used to be the biggest lender of auto loans. But increase in the defaults from borrowers and liquidity crisis in the economy compelled the bank to stop the auto loan. Thus in late 2007 and early 2008 car sales dropped significantly as the private banks scaled down their auto finance segments and also the rate of interest was very high on these loans.
But from past few months ICICI Bank has started showing interest in auto loans segment. The change in bank standpoint has come after the increase in the demand in the car market, in the past one year the passenger car sales has grown at 16.2% to 10.52 lakh units between April and October, 2009 over the year-ago period. ICICI Bank spokesperson refused to share any information on the new strategy or reveal any details of loans dispersal when ET reported contacted. An executive related to auto finance industry told in the current fiscal, ICICI Bank has doubled the amount allotted for the auto loan disbursement; it has been increased over Rs 1,500 crore, as against the year ended March 2009.
The auto finance market anticipated to be Rs 40,000 crore a year, in the past few months has gone through major changes. The main reason for decline in market share of private banks is the virtual exit of ICICI Bank from key market and on the other hand government-owned banks adopted aggressive lending strategy, they offered cheaper loans at interest rates less than 10%. According to sources in the banking industry ICICI Bank will remain the largest player in auto finance because of its huge disbursements in the past even though other banks such as SBI, PNB, Canara Bank and Bank of Baroda, in the recent years have overtaken it in terms of new auto loans.
Monday, November 23, 2009
Tuesday, November 3, 2009
Banks September quarter net profits stand up to 20.2%, look for more margins
In the September quarter most of the banks did not have any substantial gain from core business but have made good amount of treasury and other income.
According to September quarter results declared by 37 banks – in line with analyst guess, the aggregate net profit stood up to 20.2%.
The net profit grew mainly because of other income plunged 44% year on year, with government bonds prices moving up.
While calculating the net profit banks are allowed to include notional gains on investments such as income earned on bonds to 'other income', this process is known as marking to market. The line is reversed when bonds prices fall.
On the other hand the net interest income (NII), or the difference between interest earned and interest paid, the core business income for banks increased to 7.9% year on year basis in comparison to last year 38% jump during the same period.
However that is over the June quarter, NII rose to 8.4%, mainly because of improvement in loan disbursements.
Amongst the banks the State Bank of India, India's largest by market capitalization, has reported a 10.2% jump in net profit, while its NII grew by just 2.81% on year-on-year basis.
ICICI Bank, the second largest bank net profit was insignificant up to 2.56% due to lower non-interest income. While its NII declined by 5.2%, as bank disbursed 14% less loans in the quarter.
Fewer loans were disbursed as ICICI had adopted the strategy to reduce exposure to the so-called "unsecured" retail loans and instead focused on corporate lending.
"Bank earnings have been a mixed bag. Several banks have shown an increase in treasury profits leading to improved bottom lines," said Vaibhav Agrawal, senior analyst-banking at Angel Broking.
Banks which benefited the most from a rise in other income include Central Bank of India (other income up 332.4%), Allahabad Bank (208.5%) and Canara Bank (163.6%).
Suresh Ganapathy, analyst with Deutsche Bank said the net profit results of some public sector banks haven't been up to mark.
"Higher treasury profits and lower provisioning has helped them to achieve higher net profit," he said.
Few of the banks which made profit as their core business did well include IDBI Bank (core income up 106.2%), IndusInd Bank (98.2%), Vijaya Bank (35.53%), South Indian Bank (31.27%) and Axis Bank (25.86%).
But one area which remains of concern is asset quality.
"A lot of the loan growth can be attributed to liquidity, which is not a healthy trend," according to an analyst with the domestic brokerage, not wishing to be named.
Thus net non-performing assets or bad loans of 37 banks are up by 25% on a year on year basis.
On a chronological basis, or over the June quarter, bad loans have increased by 1.12%.
"Asset quality declined at some public sector entities such as Bank of India," said Aggrawal.
The banks faced loss due to default in repayments on some retail loans and on loans to real estate and export-oriented sectors.
But the companies were able to moderate the debt burden through equity-based fund-raised by corporates in the quarter.
Praveen Sood, CFO of Hindustan Construction Company stated many realtors paid their debts through QIP proceeds. "A lot of liquidity was also made available through various other measures so that also helped," Sood said. HCC's current debt estimates to Rs 2,200 crore. Furthermore, analysts are expecting improvement in interest income and margins if credit offtake picks up. But it will all depend on the Reserve Bank of India's (RBI) new directive, which can impact profitability.
The central bank told banks must achieve at least 70% provision coverage by September next year for their bad loans.
According to analysts this will strike net profit by 3% to 4% on a back-of-the-envelope basis as all banks combined will have to provide for around of Rs 1,2000 crore to meet coverage ratio.
The central bank will be issuing more detailed guidelines on this. "It would be premature to take this into consideration right now, therefore," said Ganapathy.
According to Aggarwal the earnings growth in the third quarter, is not going to be much strong.
He observes credit growth in the 15-17% range. Ganapathy concurs. "Margins will improve going forward on account of re-pricing of bulk deposits in the coming two quarters, which will reduce cost of funds," Ganapathy said. He is expecting Bank of Baroda, PNB and HDFC to perform much better over the next one year.
According to September quarter results declared by 37 banks – in line with analyst guess, the aggregate net profit stood up to 20.2%.
The net profit grew mainly because of other income plunged 44% year on year, with government bonds prices moving up.
While calculating the net profit banks are allowed to include notional gains on investments such as income earned on bonds to 'other income', this process is known as marking to market. The line is reversed when bonds prices fall.
On the other hand the net interest income (NII), or the difference between interest earned and interest paid, the core business income for banks increased to 7.9% year on year basis in comparison to last year 38% jump during the same period.
However that is over the June quarter, NII rose to 8.4%, mainly because of improvement in loan disbursements.
Amongst the banks the State Bank of India, India's largest by market capitalization, has reported a 10.2% jump in net profit, while its NII grew by just 2.81% on year-on-year basis.
ICICI Bank, the second largest bank net profit was insignificant up to 2.56% due to lower non-interest income. While its NII declined by 5.2%, as bank disbursed 14% less loans in the quarter.
Fewer loans were disbursed as ICICI had adopted the strategy to reduce exposure to the so-called "unsecured" retail loans and instead focused on corporate lending.
"Bank earnings have been a mixed bag. Several banks have shown an increase in treasury profits leading to improved bottom lines," said Vaibhav Agrawal, senior analyst-banking at Angel Broking.
Banks which benefited the most from a rise in other income include Central Bank of India (other income up 332.4%), Allahabad Bank (208.5%) and Canara Bank (163.6%).
Suresh Ganapathy, analyst with Deutsche Bank said the net profit results of some public sector banks haven't been up to mark.
"Higher treasury profits and lower provisioning has helped them to achieve higher net profit," he said.
Few of the banks which made profit as their core business did well include IDBI Bank (core income up 106.2%), IndusInd Bank (98.2%), Vijaya Bank (35.53%), South Indian Bank (31.27%) and Axis Bank (25.86%).
But one area which remains of concern is asset quality.
"A lot of the loan growth can be attributed to liquidity, which is not a healthy trend," according to an analyst with the domestic brokerage, not wishing to be named.
Thus net non-performing assets or bad loans of 37 banks are up by 25% on a year on year basis.
On a chronological basis, or over the June quarter, bad loans have increased by 1.12%.
"Asset quality declined at some public sector entities such as Bank of India," said Aggrawal.
The banks faced loss due to default in repayments on some retail loans and on loans to real estate and export-oriented sectors.
But the companies were able to moderate the debt burden through equity-based fund-raised by corporates in the quarter.
Praveen Sood, CFO of Hindustan Construction Company stated many realtors paid their debts through QIP proceeds. "A lot of liquidity was also made available through various other measures so that also helped," Sood said. HCC's current debt estimates to Rs 2,200 crore. Furthermore, analysts are expecting improvement in interest income and margins if credit offtake picks up. But it will all depend on the Reserve Bank of India's (RBI) new directive, which can impact profitability.
The central bank told banks must achieve at least 70% provision coverage by September next year for their bad loans.
According to analysts this will strike net profit by 3% to 4% on a back-of-the-envelope basis as all banks combined will have to provide for around of Rs 1,2000 crore to meet coverage ratio.
The central bank will be issuing more detailed guidelines on this. "It would be premature to take this into consideration right now, therefore," said Ganapathy.
According to Aggarwal the earnings growth in the third quarter, is not going to be much strong.
He observes credit growth in the 15-17% range. Ganapathy concurs. "Margins will improve going forward on account of re-pricing of bulk deposits in the coming two quarters, which will reduce cost of funds," Ganapathy said. He is expecting Bank of Baroda, PNB and HDFC to perform much better over the next one year.
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