Dip in provisions helps PSB profits jump 94% to Rs 17,312 crore in Q2

Public sector banks posted a robust 94 per cent growth rate in net profit on a year-on-year (YoY) basis in the second quarter (Q2FY22) to Rs 17,312 crore on the back of other income and a sharp fall in provisions and contingencies.

Sequentially too, profit after tax (PAT) rose 22.3 per cent from Rs 14,012 crore in the June quarter. Net interest income (NII), the key source of earnings, showed growth rate of 2.3 per cent YoY to Rs 73,655 crore in Q2. Sequentially it was up 5 per cent from Rs 70,152 crore in the previous quarter.

The second quarter marked a gradual improvement after experiencing a setback from the pandemic in the April-June period. At 11 per cent, private sector banks showed better growth YoY than their public sector counterparts in net interest income. However, sequentially, public sector banks clocked higher growth than the 2.2 per cent private lenders showed.

On the marginal rise in net interest income, bankers said besides low credit offtake, the dip in yields on advances, fall in interest rates, and part-reversal in interest income for bad loans had affected net interest income. The improvement in net interest income is the function of the credit-deposit ratio (C\D ratio). The loan offtake is happening in tandem with economic recovery and upturn in the investment cycle. This will translate into better net interest income for the banking system, State Bank of India Chairman Dinesh Kumar Khara said. 

Other income, covering fees, gains from trading, recoveries from written-off accounts, etc rose 22 per cent YoY to Rs 30,891 crore in Q2.

However, it shrank sequentially from the Rs 33,099 crore in the June quarter. Showing a sturdy profile, provisions and contingencies were down 41 per cent YoY to Rs 20,499 crore in the September quarter. 

Bank executives said the lenders had been setting aside huge sums as provisions for big-ticket problem loans for four-five years prior to the  pandemic. This has pushed the provision coverage ratio to over 70 per cent. The need for incremental provisions was much less. The asset quality has been steady and improved in the second quarter. 

Gross non-performing assets (NPAs) have come down both YoY and sequentially.

Gross NPAs were down to Rs 5.79 trillion in Q2 from Rs 6.09 trillion a year ago and Rs 6.12 trillion in Q2.

 Net NPAs showed a mixed trend with a 5 per cent rise YoY at Rs 1.82 trillion in Q2. However, they fell from Rs 1.97 trillion a quarter ago.