Collectively, the pack of 12 has posted a 50 per cent rise in profits — Rs 25,685 crore.
On a quarter-on-quarter basis (that is, September over June), the rise is 68 per cent.
Public sector banks have never had such a stellar performance, explains Tamal Bandyopadhyay.
On November 7, Finance Minister Nirmala Sitharaman tweeted: ‘The continuous efforts of our govt for reducing the NPAs & further strengthening the health of PSBs are now showing tangible results. The 12 PSBs together declared net profit of Rs 25,685 crore in Q2FY23 & total Rs 40,991 in H1FY23, up 50% & 31.6%, respectively (y-o-y).’
Public sector banks (PSBs) have never had such a stellar performance.
UCO Bank’s net profit in the September quarter is 146 per cent higher than the year-ago quarter.
For Bank of Maharashtra, the rise is 103 per cent.
These are relatively small banks. The net profit of the nation’s largest lender, State Bank of India, is up 74 per cent, Canara Bank 90 per cent and Bank of Baroda 59 per cent. SBI has posted the highest ever quarterly net profit.
All PSBs have made profits and, barring Punjab National Bank and Bank of India, their profits in the September 2022 quarter are far higher than September 2021.
Collectively, the pack of 12 has posted a 50 per cent rise in profits — Rs 25,685 crore (Rs 256.85 billion). On a quarter-on-quarter basis (that is, September over June), the rise is 68 per cent.
That’s the story of the entire universal banking sector. Only two among the 18 listed private banks have shown a drop in net profits. At Rs 32,150 crore (Rs 321.50 billion), the private banks’ net profits are up 64 per cent, year-on-year.
Overall, the listed universal banks have posted a record 57 per cent rise in net profit — Rs 57,834 crore (Rs 578.34 billion).
For the first time since September 2015, SBI leads the pack with Rs 13,265 crore (Rs 132.65 billion) net profit.
Others in the big league are HDFC Bank Ltd (Rs 10,606 crore/Rs 106.06 billion), ICICI Bank Ltd (Rs 7,558 crore/Rs 75.58 billion), Axis Bank Ltd (Rs 5,330 crore/Rs 53.30 billion), Bank of Baroda (Rs 3,313 crore/Rs 33.13 billion), Kotak Mahindra Bank Ltd (Rs 2,581 crore/Rs 25.81 billion) and Canara Bank (Rs 2,525 crore/Rs 25.25 billion).
Indeed, a drop in provisions and contingencies has contributed to the rise in profits. As the pile of non-performing assets (NPAs) shrinks and fresh slippages are arrested, banks don’t need to set aside as much money as they used to in previous quarters ever since the clean-up exercise started.
The provisions for the industry have dropped 13 per cent this quarter. The decline is sharper for the private banks (45 per cent); for the PSBs, it has risen 18 per cent.
While expenditure rises 12 per cent and fee income drops 2 per cent, the biggest contribution to the hefty rise in net profits is a 22 per cent jump in net interest income (NIM) — the difference between what the banks pay for money in their kitty and what they earn on giving loans.
For the PSBs, it’s up 20 per cent; the private banks have seen close to 24.5 per cent rise in NIM.
No wonder that corporations’ net profits and profit margins have shrunk in the September quarter. The cost of finance has gone up for them with the rise in interest rates even as the raw material cost remains high.
For the first time since the June 2020 quarter, corporate profits have declined. Also, the share of banks and other financial intermediaries in corporate profits has risen to 41.5 per cent, nearly double the average of the past decade.
The good news for the banking industry is a progressive decline in bad loans. The gross NPAs of listed banks are Rs 6.62 trillion now. The PSBs have the bulk of them — Rs 4.87 trillion.
After provisions, the net NPAs of the industry are Rs 1.68 trillion with the PSBs contributing Rs 1.29 trillion.
At their peak, in March 2018, the gross NPAs of all scheduled commercial banks (listed banks plus others) were to the tune of Rs 10.4 trillion — 11.2 per cent of gross advances. Post-provision, the net NPAs were Rs 5.2 trillion — 6 per cent.
The PSBs’ gross NPAs were Rs 8.96 trillion then (14.6 per cent) and net NPAs Rs 4.54 trillion (8 per cent) in 2018.
The private banks’ pile of gross NPAs were Rs 1.29 trillion (4.7 per cent) and net NPAs Rs 64,000 crore/Rs 640 billion (2.4 per cent). Their gross NPAs peaked in March 2020 — Rs 2.1 trillion (5.5 per cent).
That’s the story of this century. The prudential norms, introduced in 1992, had a shocking impact on the banks in the previous century. By March 1994, before the first set of new private banks came on the turf, the gross NPAs for all scheduled banks was estimated to be 19.07 per cent and the PSBs had even higher — 24.8 per cent.
Indeed, they have come a long way. Barring two private banks — an old and a new — all listed banks have pared their gross and net NPAs, both in percentage terms as well as absolute quantum, year-on-year and quarter-on-quarter.
In the pack of private banks, IDBI Bank Ltd continues to have the biggest gross NPAs (16.5 per cent), followed by Yes Bank Ltd (12.89 per cent) and Bandhan Bank Ltd (7.19 per cent).
However, after making provisions, IDBI Bank’s net NPAs are just 1.15 per cent and that of Bandhan Bank 1.86 per cent; Yes Bank’s net NPAs are 3.6 per cent.
At least seven private banks have less than 1 per cent net NPAs. They are HDFC Bank, Axis Bank, Kotak Mahindra Bank, Catholic Syrian Bank Ltd, IndusInd Bank Ltd, ICICI Bank and Federal Bank Ltd.
Relatively, the PSBs continue to have higher bad loans. PNB tops the list with 10.48 per cent gross NPAs; followed by Central Bank of India and Punjab & Sind Bank (9.67 per cent each), Indian Overseas Bank (8.53 per cent), Bank of India (8.51 per cent) and Union Bank of India (8.45 per cent).
Post-provision, PNB has the highest net NPAs (3.8 per cent), followed by Central Bank (2.95 per cent), Union Bank (2.64 per cent) and Indian Overseas Bank (2.56 per cent). Both SBI and Bank of Maharashtra have less than 1 per cent net NPAs.
Barring three, all listed banks have raised their provision coverage ratio (PCR) in the September quarter, adding strength to their balance sheets. Led by IDBI Bank, at least of them have more than 90 per cent PCR. IDBI Bank has 97.86 per cent PCR, closely followed by Bank of Maharashtra (96.06 per cent). Barring two old private banks, all listed universal banks have at least 70 per cent PCR.
With the nightmare of bad loans behind, is the banking industry ready to support the growing credit demand of the world’s fifth largest economy?
There are challenges. While most banks’ loan books have grown at a healthy pace, their deposit growth is lagging. Of the 12, only four PSBs have recorded double-digit deposit growth in the past one year, while barring one, most have healthy credit growth. Bank of Maharashtra’s credit growth has been 30 per cent against 8 per cent deposit growth. The comparable figures for the Central Bank are 12 per cent and 2 per cent.
Most private banks, too, are seeing far higher growth in loans than deposits. For one of them, it is five times more.
Among all listed banks, only two have seen higher growth in deposits than their loan books: IDFC First Bank Ltd (37 per cent versus 32 per cent) and Yes Bank (13 per cent versus 11 per cent).
As the war for deposits escalates, the cost of money will rise and banks’ NIM will be under pressure. Also, some banks may invite trouble by aggressively growing their retail books without necessary expertise.
As they say, only when the tide goes out will we see who has been swimming naked.
Tamal Bandyopadhyay, a consulting editor with Business Standard, is an author and senior adviser to Jana Small Finance Bank Ltd.
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