“Our profitability will be hit because of the rate hikes by the RBI...As we are in co-operative sector, we have no immediate plans of passing the hike on to our borrowers,” Saraswat Bank’s chairman Eknath Thakur said

The country’s biggest lender from the co-operative space, Saraswat Bank has posted a 78% growth in net profit at Rs212.27-crore in FY10-11 on the back of a lower base but said RBI’s (Reserve Bank of India) rate tightening will result in margins getting dented by up to 80 basis points this fiscal.

“Our profitability will be hit because of the rate hikes by the RBI...As we are in co-operative sector, we have no immediate plans of passing the hike on to our borrowers,” the Bank’s chairman Eknath Thakur said.

The Bank’s net interest margins stood at 3.52% and Mr Thakur expects it to come down to 2.80%. Currently, the Bank’s base rate is 10%, he said.

Commenting on the performance in FY10-11, Mr Thakur said the net profit increase is high because of a lower base in the previous fiscal when the Bank took a hit because of the global slowdown and its exposure to the diamond trade.

Saraswat, which has amalgamated seven banks into itself till now, is in advanced talks to takeover a Karnataka-based co-operative in a weak financial state. An MoU will be signed soon and the target bank has 39 branches, Mr Thakur said, choosing not to divulge the name of the Bank.

The 93-year-old Bank’s capital adequacy stood at 12.7%. According to Mr Thakur, the Bank’s proposal to expand the capital by issuing shares to borrowers at book value is in advanced stages of being given the go-ahead through a change in statutes.

Such permission will help it tide over problems relating to capital raising in its growth plan.

“Being a co-operative, we cannot issue shares and list on the markets. We have to think of newer ways,” Mr Thakur said, reiterating that turning itself into a private entity is also on the Bank’s radar which will take care of the capital issue.

However, he did not give any timeframe for the same.

The Bank’s total business stood at Rs27,313-crore as on 31 March 2011 and it is targeting Rs1-lakh-crore in the next 10 years.

Saraswat has also written to the RBI seeking to start asset reconstruction, microfinance and marketing subsidiaries, Mr Thakur said.

For the asset reconstruction business, it has already sounded some peers in the co-operative space and a state-run lender “informally” with a proposal to team-up as per the regulatory requirement for the business.

On its own asset quality, the gross non-performing assets (NPAs) ratio improved to 3.25% and Mr Thakur attributed the high prevalence of stressed assets to the NPAs coming from the merged banks.

For FY12, the bank is targeting a 25% growth in both advances and deposits as against FY10-11’s 24.45% and 10.75%, respectively, Thakur said, adding, he plans to add over 90 branches during the year.