Q1 results: SFBs' net profit growth flat as provisions jump over 2x

Provisions more than double on asset quality pressures

Listed small finance banks (SFBs) posted a decline in net profit by 0.6 per cent year-on-year (Y-o-Y) to Rs 1,300 crore during the first quarter of FY25 as provisions and contingencies more than doubled Y-o-Y to Rs 1,277 crore. Sequentially, the decline in net profit of SFBs was more pronounced with 14.6 per cent fall.

The asset quality of small banks deteriorated with a 47.4 per cent Y-o-Y rise in gross non-performing assets to about Rs 5,976 crore in Q1FY25, according to data compiled by BS Research Bureau for eight listed SFBs.

AM Karthik, senior vice president & co group head, financial sector ratings, ICRA, told Business Standard: “The collection activity, including that in micro loan portfolio, slowed down, which led to higher slippages. We will have to wait for a quarter to see if the rise in gross bad loan is transitory or structural.”

 

SFBs’ net interest income (NII) grew by a healthy 27.7 per cent Y-o-Y to Rs 5,827 crore. Sequentially, NII grew by 13.5 per cent over Rs 5,135 crore in Q4FY24.

While the interest earned grew by 33 per cent Y-o-Y to Rs 10,709 crore in Q1FY25, the pace of growth was faster at 40 per cent Y-o-Y in interest payout at Rs 4,882 crore. Sequentially, interest earned grew by 13.2 per cent over Rs 9,460 crore and interest expenses rose by 12.9 per cent over Rs 4,324 crore.

Other income, covering fees, commissions and revenues from the treasury stream, grew by 31.4 per cent Y-o-Y to Rs 1,447 crore in Q1FY25. Sequentially, other income fell by 7.7 per cent from Rs 1,567 crore.

Provisions and contingencies, including those for non-performing assets (NPAs), shot up by 127.9 per cent Y-o-Y to Rs 1,277 crore in Q1FY25. Sequentially, they rose sharply by 51.4 per cent from Rs 843 crore.

Provisions were up due to two reasons — to meet regulatory requirements for increase in NPA and, two, some lenders have set aside higher amounts as preparation for application for universal banking licence where net NPAs should be below 1 per cent — Karthik added.

PN Vasudevan, managing director and chief executive officer, Equitas Small Finance Bank, in an analyst call said the credit cost for Q1FY25 has spiked up due to two factors. “One is that we have done a one-time correction in provision coverage ratio (PCR), and taken it from about 55-and-odd per cent to 70 per cent. Second, because of weaker collections.”

Generally, Q1 is a seasonally weaker quarter for collections. “We are focused on this and expect that the coming quarters would be better,” Vasudevan added.

The asset quality profile came under pressure with gross NPA in absolute amounts rising by 47.4 per cent to Rs 5,976 crore at the end of June 2024 from Rs 4,055 crore a year ago. Sequentially also, they rose by 22.2 per cent from Rs 4,888 crore at the end of March 2024.

Net NPA also rose by 55.6 per cent to Rs 1,929 crore in June 2024. The figure was Rs 1,240 crore in June 2023. Sequentially, they rose by 25.2 per cent from Rs 1,541 crore at the end of March 2024.