Healthy outlook: Banks profit rises 33.5% to Rs 77,564 crore in Q2

High credit offtake; lower credit costs boost bottom line

Gaining from high credit offtake and lower credit costs, banks posted a healthy 33.5 per cent year-on-year (YoY) growth in net profit at Rs 77,564 crore in the second quarter ended September 2023 (Q2FY24).
 

However, sequentially, profits showed moderation with 5.4 per cent growth over the first quarter that ended June 2023 (Q1FY24) as a rise in the cost of funds began to dent interest margins and public sector lenders made higher provisions for prospective wage revisions.
 

Their Net Interest Income (NII) expanded by 17.4 per cent YoY in Q2FY24 to Rs 1.9 trillion, reflecting the benefit from repricing of loans and fresh credit disbursement at higher rates.
 

Sequentially NII, the key revenue element, grew marginally by 2.7 per cent compared to Rs 1.85 crore in Q1FY24, according to analysis based on data compiled by BS Research Bureau for listed banks.According to Reserve Bank of India data, the bank credit expanded by 20 per cent YoY till September 22, 2023. This factors in the merger of HDFC with HDFC Bank in Q2FY24. Bankers said incremental benefit from repricing of loans has moderated and the rise in the cost of funds (deposits) is catching up, impacting margins.

 

Karan Gupta, Director of India Ratings, said the rising cost of funds (deposits) has begun to impact (putting pressure) on margins, and going forward, this would flatten the financial metrics and would not see any substantial improvements.
 

Other income covering fees, commissions and revenues from the treasury stream, grew by 22.5 per cent YoY to Rs 67,106 crore in Q2FY24 from Rs 54,768 crore in Q2FY23.
 

The growth in loan volumes helped to increase fees in Q2, bankers said. However, sequentially, the other income rose by a mere 2.3 per cent over Rs 65,605 crore in Q1FY24.
 

The provisions and contingencies, including those for standard loans and NPAs, dipped by 32.4 per cent YoY to Rs 23,935 crore in Q2FY24. Sequentially also they fell by 18.6 per cent from Rs 29,422 crore in Q1FY24. This reflects lower asset quality pressure amid a conducive business and economic environment.
 

Global Rating agency Fitch Rating in a review of Indian Bank’s viability ratings said, “There is a positive bias on the VRs for most banks as we expect the sustained better performance to drive further improvement in the core metrics”.
 

The asset quality profile remained robust with the gross non-performing assets (NPAs) in absolute amounts declining by 22.2 per cent YoY to Rs 5.15 trillion at the end of September 2023 from Rs 6.62 trillion a year ago. Sequentially, they declined by 3.3 per cent from Rs 5.32 trillion at the end of June 2023. Besides, the upgradation of erstwhile stressed accounts due to regular repayments 

and writing–off of fully provided accounts helped to prune the tally of gross NPAs, bankers said.
 

Net NPAs, aka bad loans, which are yet to be provided, also fell by 30.1 per cent YoY to Rs 1.17 crore in September 2023. The figure was Rs 1.67 trillion in September 2022. Sequentially, they dipped by 6.2 per cent from Rs 1.25 trillion at the end of June 2023.