Pension provisions drag Dena, Corp Bank profits

Net profits of Dena Bank and Corporation Bank took a hit in the quarter ended March, as the public sector lenders provided for pension liability. Also, increased cost of funds added pressures to the banks’ margins.

The Reserve Bank of India (RBI) had mandated banks to provide entirely for pension liabilities of retired employees in the financial year 2010-11, while provisions for existing employees who exercised a second pension option could be amortized over a period of five years.

Accordingly, Dena Bank provided for Rs 188.42 crore towards the pension provisions which dragged the bank’s net profit to Rs 157 crore, higher by 14.54 per cent as compared to the fourth quarter the previous year. The bank’s net interest income was up 44.5 per cent in the quarter ended March. It saw a growth of 25 per cent in deposits and 26.4 per cent in bank advances in the fourth quarter.

Dena bank’s net interest margins were at 3.09 per cent as on March down 18 basis points from the previous quarter on the back of a rise in cost of funds by 30 basis points in the same period. “The pressure of re-pricing will continue to impact the margins in the April-June quarter and may come down from the September quarter onwards,” said D L Rawal, chairman and managing director.

Corporation Bank posted a net profit of Rs 345.3 crore in the quarter ended March, 10.6 per cent higher as compared to the same period the previous year. “The net profits were low on account of higher provisioning for pension liability,” said Ramnath Pradeep, chairman and managing director. The bank had to provide for Rs 184 crore towards pension liability in the fourth quarter. Its net interest margins were at 2.48 per cent in the January-March quarter, up 18 basis points from the previous quarter.

Source: Business Standard