Private banks score on core operations, better control over bad debt in Q2

While profit before tax grew 68.1%, net profit showed an increase of only 1.4%

Private sector banks showed greater resilience in their core operations and exhibited better control over their bad debt. Profit before tax increased but the new tax regime upset the net profit numbers for the whole sector, as the lenders decided to move to the new regime. 

While profit before tax grew 68.1 per cent, net profit for the private sector banks grew only 1.4 per cent because of tax charges and elevated provisioning.

According to analysts, net profit (after clearing the deferred taxes) would be better from the next quarter.

In terms of net interest income (NII) and operating profit, the private sector banks were largely on par with public sector banks. While the net interest income for public sector banks rose 13.6 per cent (17.7 per cent in case of State Bank of India), operating profit in public sector banks rose 28.2 per cent year on year. 

In case of private sector banks, the rise in NII and operating profits were 20.6 per cent and 25.2 per cent, respectively. Net interest margins for large banks were comfortably above 3 per cent.

Gross non-performing assets in private sector banks rose 2.8 per cent, while in public sector banks, gross NPAs declined 12.1 per cent. This indicates that the banking system has largely bettered the asset quality pressure witnessed in the past couple of years.

It is perhaps also an acknowledgement that the recognition part of bad assets was done. Most of the bad debts of banks in this quarter came from assets rated BB and below, which were already in the watch of the banks, noted analysts.

But YES Bank attracted the attention of analysts with 343 per cent rise in bad debts, making its gross NPA ratio at 7.39 per cent in the September quarter, against 1.60 per cent in the year-ago quarter. IndusInd Bank also showed high stress on its books, with gross NPAs in absolute term rising 145 per cent. 

Profit before taxes for the private sector banks were up by a handsome 68.1 per cent, indicating that the banks did well in their core operations. But elevated provisioning were done by some to address bad assets. 

Tax charges dented profitability of ICICI Bank. The bank saw its net profit dip 28 per cent to Rs 655 crore in the September quarter over previous year quarter due to deferred taxes. 

“Excluding the impact of one-time additional charge due to re-measurement of accumulated deferred tax, profit after tax would have been Rs 3,575 crore in Q2FY20, as against Rs 909 crore in Q2FY19,” ICICI Bank said in its results statement. Profit before taxes rose 248 per cent in the bank to Rs 4,367 crore. Interestingly, ICICI Bank’s provisions and contingencies fell 37 per cent. 

Axis Bank also reported a loss of Rs 112 crore in the September quarter, whereas profit before tax rose 108.6 per cent to Rs 2,433 crore. Most analysts were happy with the results and gave a buy rating on the stock. RBL Bank’s net profit fell 73 per cent due to 282 per cent rise in provisioning. Profit before tax also fell 66.9 per cent because of provisioning.

IDBI Bank continued with its huge losses and posting net loss of Rs 3,459 crore, which was Rs 4,632 crore before tax. Newcomer IDFC First Bank reported a loss of Rs 680 crore, while before tax, the bank had a profit of Rs 100 crore. The bank had reported losses in year-ago quarter, too.

HDFC Bank maintained its net profit growth performance, rising 26.8 per cent (17.5 per cent before tax), and Kotak Mahindra Bank reported a 51.1 per cent rise in net profit (20.6 per cent before tax). 

Bandhan Bank’s net rose 99.3 per cent after tax and 55 per cent before tax, indicating that these banks had benefited from change in tax regime. The provisions and contingencies of these three banks rose 48.4 per cent, 15.3 per cent, and 17.2 per cent respectively.