Dena Bank announced its third quarter results which were positive overall, especially on the operations front. But some concerns remain

Dena Bank has posted a net profit of Rs206.44 crore for the quarter ended 31 December 2012, a 10.75% increase, when compared to Rs186.68 crore for the corresponding period last fiscal. At the same time, its total revenues have increased 33%, from Rs1,810.21 crore for the quarter ended 31 December 2011 to Rs2,408.42 crore for the quarter ended 31 December 2012. The profitability was helped by an increase in interest income, which rose 35% to Rs2,264 crore for the reporting quarter. The bank expects to maintain net interest margin of around 3% for the remainder of the 2013 fiscal.
 

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According to Moneylife’s database, the bank’s quarterly revenue growth rate (33%) has kept up with its three-quarter year-on-year (y-o-y) growth rate of 35%. However, its operating profit growth disappointed, rising only 13% for the quarter compared to 29% y-o-y growth rate in the preceding three quarters. Its annualized return on capital employed (RoCE) stood at a respectable 15%. Likewise, its operating RoCE was double, at 30%, which shows operating efficiencies of the bank. Given all this, the bank is quoting at an attractive valuation, with its market capitalisation quoting at just over two times its operating profit.
 

As of 31 December 2012, 30% of its loan portfolio was doled out to large industries while just over 10% was exposed to the agricultural sector. In the retail credit segment (which took up just over 12% of the total loan portfolio), the housing segment was its biggest contributor, with over 60% given out to new home owners.
 

Despite positives, there were some negatives too, but they weren’t of that much concern.
 

Asset quality somewhat deteriorated, with its non-performing assets (NPAs) rose as much as 48% to Rs1,317 crore during the quarter ended December 2012 from Rs885 crore from the same period last year. The bank has set aside Rs237 crore as provisions, which is higher by 15% when compared to the last quarter. The bank will start monitoring of borrowing accounts online to prevent slippages. At present, Dena Bank is monitoring all accounts above Rs10 crore on a daily basis.
 

As of December 2012, its advances stood at Rs63,040 crore when compared Rs47,928 crore as of December 2011. Likewise, its deposits stood at Rs84,882 crore on December 2012 when compared to Rs68,339 crore as of December last year. The increase in savings deposits by 10% to Rs20,216 crore led to a decline in CASA ratio, which is a concern. The CASA ratio stood at 30.98%, down nearly four percentage points, from 34.90% during December 2011. A decline would mean higher cost of funds for the bank which in turn would shrink margins. The cost of deposits stood at 7.75% which is marginally higher than 7.09% seen in December 2011 quarter.
 

Dena Bank has opened 14 new branches during the quarter and total 89 branches during the nine months ending December 2012.