Riding on high NII and other income, SFBs witness 59% profit growth

The net profit of listed small finance banks (SFBs) surged 59 per cent year-on-year (Y-o-Y) to Rs 1,057 crore in the first quarter ended June 2023 (Q1FY24), driven by healthy growth in net interest income (NII) and other income streams, such as treasury gains and fees.

Sequentially, however, net profit declined 3.73 per cent from Rs 1,098 crore, according to an analysis based on the performance of five listed SFBs -- AU, Equitas, Suryoday, Utkarsh, and Ujjivan.

The banks' NII expanded 23.8 per cent Y-o-Y to Rs 3,381 crore, reflecting the advantage of increased lending rates. However, quarter-on-quarter (Q-o-Q), NII growth moderated to 3.1 per cent from Rs 3,278 crore, partly illustrating the effect of deposit repricing.

High growth in credit offtake during Q1FY24, generally seen as a period of moderate activity, aided NII. Additionally, a pattern of immediate repricing of loans, while deposit revision lagged, contributed to the strong showing in the first quarter of FY24, according to bankers.

The Reserve Bank of India (RBI) has raised policy repo rates cumulatively by 250 basis points since May 2022. The repo rate remained unchanged at 6.5 per cent in the monetary policy reviews in April, June, and August. Deposits witnessed growth of 13.2 per cent Y-o-Y until June 30, with the interest rates on liabilities, including deposits, being revised gradually over time.

Other income, including fees, commissions, and revenue from the treasury stream, grew 56.2 per cent Y-o-Y to Rs 806 crore in Q1FY24. An increase in loan volumes contributed to higher fees during the first quarter. Sequentially, other income fell 5.62 per cent from Rs 854 crore.

Provisions and contingencies, including those for standard loans and non-performing assets (NPAs), decreased 32 per cent Y-o-Y to Rs 250 crore in Q1FY24, down from Rs 371 crore. This highlights the easing of asset quality pressure in a favourable business and economic environment. Provisions and contingencies remained flat against Rs 251 crore in Q4FY23.

The asset quality profile of these banks remained strong, with net non-performing assets (NPAs), or bad loans that have yet to be provided for, falling to Rs 830 crore by June 30, 2023, from Rs 1,152 crore a year earlier. Sequentially, however, they increased from Rs 712 crore.