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Non-interest income cushions earnings

The fall in demand for corporate loans may have slowed the rise in banks’ interest income, but earnings from fees and commission, dividends from subsidiaries, trading profit and foreign exchange gains appear to have cushioned the impact, leading to lenders recording an improvement in profitability for the quarter ended March.

ICICI Bank, India’s largest private lender, reported a 34.7 per cent year-on-year rise in non-interest income for the March quarter. Growth in retail fees, higher dividends from its life insurance subsidiary and gains from the bank’s equity portfolio contributed to the rise.

“The bank received dividends from ICICI Bank UK and ICICI Bank Canada — about $ 25 million each — in the fourth quarter of 2013-14. During the quarter, based on the significant reserves and surplus position in foreign branches and the muted growth outlook in the near term, the bank repatriated profits from its foreign branches, resulting in exchange rate gains of Rs 222 crore,” N S Kannan, the bank’s executive director, told analysts.

ICICI Bank’s net interest income rose only 14.6 per cent during the quarter.

Mid-sized private lenders such as IndusInd Bank and YES Bank also reported strong growth in non-interest income. During the March quarter, IndusInd Bank’s non-interest income surged 42 per cent compared to the year-ago period. The bank’s net interest income increased 18 per cent year-on-year.

“An 18 per cent increase in net interest income looks low to us, too, but keep in mind the base effect…Non-interest income is now 40 per cent of our total income, probably one of the highest in the sector,” Romesh Sobti, managing director and chief executive of IndusInd Bank, said after announcing the bank’s earnings for the March quarter.

For YES Bank, the year-on-year growth in non-interest income was 17.4 per cent, while net interest income rose 12.8 per cent. “During this quarter, fee income traction increased from the transactional and retail banking segments, which have much more granular constitution, as far as revenue is concerned… For the quarter, the non-interest income accounted for 39 per cent share of the total income,” said Rajat Monga, senior group president (financial markets) and chief financial officer, YES Bank.

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