Bank of India (BoI) has posted significant growth in the advance tax payment for the quarter ended September 2009. The bank has paid an advance tax of Rs 500 crore for the quarter, which is more than double compared to what it paid last year.

We claimed depreciation on investments last year, which had to be reversed. Moreover, there can be some improvement in the working capital also, said VKR Agrawal, general manager, finance, BoI.

This means that there is a possibility that the bank may post higher growth in earnings in September 2009 quarter than last quarter. And if it turns out to be true, it will be a breather for investors who have seen the banks growth recede in the past six months.

BoI was one of the fastest-growing players in the large bank category for nine straight quarters from FY06 to FY09. The interest rates had spiked in the third quarter of the previous fiscal.

This had resulted in high cost of deposits resulting in margin squeeze. The profit growth, which stood at 70% in December 2008 quarter, fell dramatically to 7% in the subsequent quarter.

The quarter ended June 2009 was no different as its profit growth further plunged to 4%. BoIs net interest margin (NIMs) slipped to 2.4% compared to 2.9% in corresponding period last year. Although its advances grew by 22.3% in June 2009 quarter, it did not result in growth in bottomline because of a dip in NIMs.

Mr Agrawal also said that BoI expects NIMs to rebound to 3% by end of FY10. From the growth in advance tax payment, it seems that the bank may be able to see a rebound in NIMs. BoI has been expanding its loan portfolio at a faster rate than the industry. The profit growth is set to escalate with an expected improvement in NIM.

Meanwhile, BoI continues to remain one of the most efficient banks in the country. Even during the tough period last year, BoI managed its asset quality quite well. For instance, the net non-performing assets comprised less than 1% of net advances at the end of June 2009 quarter.