The year 1998-99 has not been a good year for Banks. Even SBI has recorded a steep fall in the profitability. While the fall in the lending rates is the main reason for decline in the profitability, banks also had to contend with the provisions for wage revisions. The economic slow down has also affected recoveries and increased the incidence of NPA s in the system. Most of the banks are therefore reporting lower profitability for the year. Consequently Bank shares are not currently commanding a high Price-Earning ratio in the market. It was therefore prudent for Times Bank to have come out with a par issue rather than holding onto a false sense of prestige like some other Banks who opted for premium pricing in a similar situation. This reflects a pragmatic and investor friendly attitude of the Bank.

Times bank is now about 4 years old in the industry and has built up a decent track record. With an equity capital of Rs 100 crores and a reserve base of Rs 70 crores, the bank has mobilized Deposits of about Rs 3013 crores by end of March 1999. The asset portfolio consists of Advances to the extent of Rs 1300 crores and Investments of Rs 1043 cores.

The yield on advances has been reported at 15.10 % for the year 1998-99, which showed only a marginal drop from the previous year’s figure of 15.77 %. This must be considered very encouraging in view of the prevailing industry situation. The yield on investments has been 11.85 % which shows a decline of 0.55 percentage points compared to the previous year’s 12.40 %.

The Bank has been able to successfully absorb the fall in the yields on its advances by controlling its cost of Funds. For example, the cost of Deposits (which constitutes 92% of the total resources of business), during the year has shown a decline of 0.98 percentage points at 10.30 % as compared to 11.28% in the previous year. Bank has also built up a good revenue generation in fee-based activities,Treasury operations and Foreign Exchange transactions. Out of the total income of Rs 327 crores for the year, 41 crores (12.5%) came from other than the Interest income. Of this,Rs 27 crores came out of Treasury operations and Rs 7 crores out of Foreign Exchange operations. As a result, the net profit for the year 1998-99 was Rs 27 crores compared to Rs 23 crores in the previous year.

The quality of assets of the bank however does attract some concern. While the net non-performing assets as a percentage of net advances was 3.01 %, the increase of NPA in absolute terms during the year was around Rs 14 crores. At the current profitability levels, this does indicate pressure on the future profitability of the Bank. Considering that the portfolio of the Bank is relatively new and is now undergoing a major expansion after the public issue, the increased revenue stream in the future is expected to absorb the impact of the current level of NPA s.

As per the projections of the bank, a net profit of Rs 46 crores is expected for the current year 1999-2000. If this materializes, the EPS should be around Rs 3.40. It is however more likely that the Bank may maintain the EPS at the current levels of Rs 2.50 on the increased capital since the interest rate scenario may continue to remain depressed in the current year.

Since the current Price to Earning ratios of other comparable banks in the market are around 3, the investment opportunity appears attractive. Investors should not therefore miss this opportunity to invest in a new generation Bank at the exclusive offer price at par.

Na.Vijayashankar

26 th June 1999