(Source: By Joel Rebello, Mint, New Delhi) – Deutsche Bank AG, Germany’s largest lender, said on Tuesday that net profit from India rose 31% to `823 crore in the last fiscal year from `630 crore mainly because of increased income from businesses such as cash management, commercial banking and loans to firms.
The rise in profit was despite a marginal drop in the bank’s loan book to `28,626 crore in 2011-12 from `28,680 crore, in the year earlier.
Net interest margin (NIM) improved to 5.7% from 5.2%, increasing income 10% to `3,151 crore from `2,861 crore, the bank said in a release. NIM is the difference between income earned and interest expended and is considered a key matrix in a bank’s profitability.
Operating expenses dropped to `1,055 crore from `1,123 crore as the bank embarked on “cost-optimising” measures through the year.
“We have looked at every head and tried to cut costs including vendor expenses and also office expenses in the last two years. The result has allowed us to keep our cost to income in check,” said a senior bank official, who didn’t want to be named as he’s not authorized to speak to the media.
The official said Deutsche Bank’s loan book shrunk last year because the bank focused on high-yielding assets and shed those offering lower yields.
“The strategy has been successful as reflected in the high NIMs as well as higher return of assets compared to the previous year,” the official said.
Return on assets improved to 2.58% from 1.95% in 2010-11 while provisions for bad loans dropped to `12 crore from `85 crore.
Deutsche Bank also announced that its retail banking division had turned profitable seven years after it started giving loans to individuals in India in 2005-06. “This has been achieved in a highly challenging and competitive banking environment. The key to success has been the relentless focus on core businesses, stress on quality and customer satisfaction while maintaining strict cost discipline,” Deutsche said in the release.
In April 2011, the bank sold its credit card business worth `224 crore to IndusInd Bank Ltd, together with its entire operating platform, including talent and technology. Its retail book is now only a small part of its business in India, consisting of individual bank accounts, personal and home loans.
Deutsche Bank is without a head in India after former India chief executive officer (CEO) Gunit Chadha took over as co-CEO of the bank’s Asia-Pacific business on 1 June.
Chadha said Deutsche Bank will continue to invest in retail banking, though this will remain a small part of its business in India.
Last fiscal, the German bank received Reserve Bank of India approval to open branches in Ahmedabad and Surat, which will take its network to 17 outlets. The new branches were offered after a two-year gap.
In the press release issued by the bank, Chadha said the 31% growth in net profit last fiscal was built on “strong and diversified businesses across a highly client-centric organisation in India.”
“The bank saw NIM expansion to 5.7%, which combined with a tight cost to income ratio of 41% and net NPA (non-performing asset) ratio of 0.09% meant that the bank turned in a very impressive performance,” said Chadha, who is now part of the bank’s executive committee that reports to the board.
In March, Deutsche Bank announced it had infused `455 crore into Indian banking operations, the fifth infusion since 2007. Deutsche Bank’s capital base in India is at over `6,000 crore currently with a capital adequacy ratio of 14.1% as on 31 March.
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