The BFSI sector, a major contributor to economy as well as advertising spends, has been burgeoning in the past quarter, especially the private sector. As the first quarter results of banks were recently announced we take a look at the results to not only see how much have the ad and promotional spends increased, but also how much they have grown.
BFSI clocks in high net profits of 20% on strong growth of loans, NII and other income
Private sector banks are the top ad spends contributors in the BFSI segment including ICICI Bank, Kotak Mahindra, HDFC Bank, Axis Bank and Yes Bank. Most of them saw high 15-20% growth in their net profit in Q1 and their results were better than analysts’ expectations. The reason for this was strong loan growth, healthy net interest income (NII) growth which is a difference between interest earned and interest expended and other income growth.
For instance, ICICI Bank, which is India’s biggest private sector lender in terms of assets, saw its Q1 net profit increased by 12%. The net profit of the bank increased to Rs.2,976 crore during the first quarter this year from Rs.2,655 crore during the same quarter last year. The bank’s total income increased by 8.1% since the corresponding quarter last year.
HDFC Bank, which the second largest private sector bank in India, too saw a large double-digit growth of 20.7% in its net profit to stand at Rs.2,696 crore during the first quarter from Rs.2138 crore in the same quarter last year. The total income of the bank grew by 26%. The reason for the growth was due to high growth in other income and operating profits.
Kotak Mahindra Bank on the other hand saw its net profits decline by 35% as it fell to Rs.516.57 crore in the June ended quarter this year against Rs.698 crore during the same quarter last year. The reason for this was due to provisions made by the bank with merger between Kotak Mahindra Bank and ING Vysya Bank that came into effect from April 1, 2015. The provisions the bank had set aside amounted to Rs.305 crore as against Rs.14 crore during the same quarter a year ago. It had also reported expense of Rs.63 crore for integration of the operations and other expenses that came along with the merger.
Yes Bank, like ICICI Bank and HDFC Bank, saw a very positive first quarter as its net profit grew high double-digits to over 27.7% in the June ended quarter to Rs.551 crore compared the same quarter last year. This was helped by the strong growth in the net interest income which was up by 42% and deposits that grew by 25%.
Axis Bank saw its net profits increase by 19% during the quarter to Rs.1,978 crore. The total income also increased by 22.5% in comparison with the same quarter last year. The bank managed to deliver strong positive results amid a difficult operating environment. The reason for the good performance during the quarter was due to the other income and operating profit.
Double-digit growth in ad spends expected from BFSI
According to the Pitch-Madison Advertising Outlook 2015 the contribution of the BFSI category to TV had seen a growth in ad spends to the tune of 15.6% towards TV spends and was one of the largest contributors at 3.8% in 2014, after FMCG, Auto, Ecommerce and Durables spends. As ad spends in 2014 on TV were Rs.14,158 crore according to the report, the BFSI category’s contribution would be at Rs.538 crore. It is further expected to contribute in high double digits in 2015. While the BFSI contribution to ad spends in radio grew by 4.2% from 2013 to 2014, it was the third largest spender on radio after categories such as Real Estate & Home Improvement and telecom internet DTH and contributed as much as 8% in 2014. This would put its contribution to around Rs.102 crore in 2014. The sector is further expected to contribute a significant part of spends to this medium.
The private banks during this quarter also saw a large double-digit growth in their other operating expenses which includes a large part of the advertising and promotion spends.
ICICI Bank’s other operating expenses (which includes ad and marketing spends) increased by 14% in the June quarter as against the same quarter last year. In Q1FY2016 it grew to Rs.1,799.9 crore from Rs.1,578.12 crore in Q1FY2015. The total expenditure saw a growth of 6.5% as compared to the first quarter last year.
HDFC Bank’s other operating expenses saw a large rise of 28.7% in comparison to the same quarter last year. It also includes the ad and promotion spends and can be seen as rise in it during the quarter. The total expenditure of the company also saw a large increase of 26.2% as against the corresponding quarter last year.
For Kotak Mahindra, the total other operating expenses which includes brokerage, depreciation, rent, taxes and lighting and others increased significantly by 53.6%. The others expenses (which includes ad and promotion spends) in total operating expenses saw a phenomenal increase of 61.9% during the quarter. It can be recalled that the merger of the two banks brought about marketing campaigns and also the launch of the ‘Kona Kona Kotak’ campaign during the period. The campaign used TV, outdoor, radio and social media heavily. Kotak also had acquired on-air time during the IPL season 8 such as the 4’s and 6’s.
Yes Bank’s other operating expenses (includes ad and promotion expenses) of the bank also saw a large growth during the period as it rose by 35% in comparison with the same quarter last year. It increased to Rs.408 crore during this quarter from Rs.302 crore during the same quarter last year. Yes Bank had seen its marketing spends mainly on IPL season 8 during the quarter for which it was an on-ground sponsor. It also had ad spends on TV during IPL as it had acquired inventory for 4’s and 6’s during the tournament. Apart from the annual sponsorship fees the company during this IPL season increased this spends on on-ground activations IPL Fan Parks and other activations around the sport.
Axis Bank’s other operating expenses of the bank increased by 7.3% to Rs.1,453 crore during the quarter from Rs.1,354 crore during the same quarter last year. The ad spends for the bank during the quarter would go mainly to the launched their new campaign to promote ‘Ping Pay’ their multi-social payment app. The campaign was extensively present on TV, digital and outdoor with brand ambassador Deepika Padukone displaying its features.
Media planners who we spoke to expect ad spends of banking sector especially in the private sector to increase ad spends in Q2 in the run up to the festive season and especially on the back of the high net profit growth that was seen in the first quarter.
Bad loans and NPAs still dampen Q1 results of banks
The positive results of these private sector banks were also aided by the lowering of bad loans and non-performing assets (NPAs) which reduced for some banks since the last quarter. This is good news as the Indian banking sector has been reeling from the large amount of bad loans and NPAs. However, some of the banks did see a higher provision for bad debts and some even saw their bad loans and NPAs increasing and this to an extent reduced profits. This shows that Indian banking sector has some way to go before it can settle bad loans and NPAs to a manageable level.
ICICI gross bad loans as a percentage to the total loans dropped to 3.68% from 3.78% during the previous March ending quarter.
However, HDFC Bank’s provision for bad loans saw a large increase of 50.8% to Rs.728 crore in Q1 this year against Rs.428.8 crore in Q1 last year. This restricted further growth of the bank during the quarter. The gross NPA’s declined to 0.95% from 1.07% in the same quarter last year.
Kotak Mahindra Bank’s gross NPAs increased to 2.04% compared to 1.56% during Q1 last year. The gross bad loans increased to 2.31% in the June quarter as compared to 1.85% in the March ending quarter.
Yes Bank maintained gross bad assets of around 0.46% of the overall book. Yes Bank’s gross NPA increased by 17% as compared to the March ending quarter.
Axis Bank’s provision for bad loans increased by 58% to Rs.1,122 crore during the June ended quarter. The gross NPAs too rose slightly to 1.38% in Q1 this year from 1.34% in the previous year.