Private sector banks post robust 37% YoY growth in net profits in Q1

The rise in provisions and contingencies, that for standard loans and NPAs, was 10.8% YoY to Rs 9,596 crore in Q1Fy24

Private sector banks reported a robust 37.0 per cent year-on-year (YOY) growth in net profit to Rs 37,683 crore in the first quarter ended June 2023 on healthy growth in net interest income (NII) and strong credit offtake.

NII was up 26.4 per cent YoY to Rs 80, 404 crore, reflecting the benefit of a spike in lending rates, according to analysis based data compiled by BS Research Bureau for 15 listed banks which have announced so far.

Reserve Bank of India began hiking policy repo rates in May 2022. It has increased by 250 basis points since then. However, the repo rate remained unchanged through the first quarter of the current financial year.

Besides robust growth in loans at 16 per cent on YoY basis till June-end, commercial banks have benefitted from the immediate repricing of loans. The interest rates on liabilities (deposits) get revised over a period. The deposits expanded by 13.2 per cent YoY till June 30, 2023.

According to Reserve Bank of India data, the weighted average lending rate (WALR) on fresh and outstanding rupee loans increased by 176 bps and 106 bps, respectively, from May 2022 to May 2023.

On the deposit side, the weighted average domestic term deposit rates (WADTDR) on fresh and outstanding rupee deposits increased to 229 bps and 134 bps, respectively.

Other income covering fees, commissions and revenues from the treasury stream, grew by 39.4 per cent YoY to Rs 29,653 crore in Q1Fy24. The growth in loans helped to increase fees.  

The rise in provisions and contingencies for standard loans and NPAs was 10.8 per cent YoY to Rs 9,596 crore in Q1Fy24. This reflected lower asset quality pressure amid a conducive business and economic environment.

Banks also maintain management overlays and provisions over and above regulatory norms for any unexpected losses. Banks have also begun to gradually set aside money to shift to the proposed Expected Credit Loss (ECL) regime over a period.  

The asset quality profile continued to be robust with the gross non-performing assets (NPAs) declining by 32.1 per cent YoY from Rs 1.18 trillion crore at end of June 2023 from Rs 1.74 trillion a year ago.

Net NPAs (bad loans), which are yet to be provided, also fell by 29.8 per cent to Rs 27,091 crore in June 2023. The figure was Rs 38,583 crore in June 2022.