Last week, State Bank of India (SBI) shares rose 25% in first quarter net profit, bringing the stock to a lifetime high. There were two consecutive days of appreciation last week that allowed SBI to break its profit record, but the real growth impetus lies in the 12.7% rise in Bombay Stock Exchange’s banking index. This significant increase is even more telling when compared to the 1.98% increase in Sensex, the sensitivity index for a select 30 stocks in the Bombay Stock Exchange: it becomes clear that investment in the public banks of India is a wise financial decision.
Net Interest Income
Compared with increases in the first quarter of last year, public banks have seen a 48.4% increase in their net interest income, or NII. This measurement is achieved by subtracting the amount of interest paid out by a bank for liabilities from the amount of interest it receives from assets. A high growth rate like the one posted for the first quarter of 2010-2011 shows that India’s public banks are enjoying significantly increased profit margins. In comparison, private banks posted only a 25% rise.
Net Interest Margin
NIM is calculated as a percentage of a bank’s interest-earning assets and expresses the difference between interest generated and interest paid out relative to those assets. The public banks’ NIM, then, is also growing at an impressive rate, posted at three times the increase of private banks’ NIM relative to last year’s growth. SBI, for example, has seen an increase of 0.88% in its NIM during this year’s first quarter, as compared to ICICI Bank’s increase of 0.1%. SBI and other private banks are earning a significantly greater amount on their loans than they are spending on deposits.
Public and Private Bank Distribution
Public banks included in the Bombay Stock Exchange’s banking index are Bank of Baroda, Bank of India, Canara Bank, IDBI Bank Ltd., Punjab National Bank, Union Bank of India, and SBI. Private sector banks include Axis Bank Ltd., Federal Bank Ltd., HDFC Bank Ltd., ICICI Bank Ltd., IndusInd Bank Ltd., Kotak Mahindra Bank Ltd., and Yes Bank Ltd.
Bio: Alexis Bonari is a freelance writer and blog junkie. She is a passionate blogger on the topic of education and free college scholarships. In her spare time, she enjoys square-foot gardening, swimming, and avoiding her laptop.