BFSI forms larger pie of corporate profits in India than US, Europe

The global banking, financial services, and insurance (BFSI) industry over the past year has seen a significant increase in revenues and net profits. This surge is largely due to rising lending rates and an expansion in the net interest margins of banks and non-bank lenders. 

As a result, BFSI firms have become major contributors to corporate earnings in many economies. India’s corporate earnings performance is particularly dependent on the BFSI sector, more so than most other major economies, with the exception of China.

In India, the BFSI sector now accounts for nearly 35 per cent of total corporate profit. This is higher than the United States (29.3 per cent), Western Europe (27.3 per cent), the United Kingdom (27.3 per cent), Japan (9.7 per cent), and South Korea (32.6 per cent). Only China surpasses India in this regard, with BFSI firms accounting for 54.9 per cent of the country’s corporate earnings.

Despite a global contraction in corporate profits over the past 12 months, BFSI firms across major markets have defied this trend. This defiance has led to a sharp increase in the BFSI sector’s contribution to overall corporate profit.  China is an exception to this trend, with both BFSI and non-BFSI firms reporting a year-on-year decline in aggregate net profit in US dollar terms. 

 

India, too, is an outlier -- with positive earnings growth in both BFSI and non-BFSI sectors.

Over the past 12 months, the BFSI sector’s contribution to corporate earnings in India has increased by 930 basis points from its 25.5 per cent share a year ago. This is the third-sharpest increase after South Korea (1,270 bps rise in BFSI profit share) and Western Europe (up 980 basis points). In comparison, the BFSI profit share has increased by 610 basis points in Japan, 490 basis points in the United Kingdom, 480 basis points in the United States. BFSI firms in China have seen a minimal increase of 0.5 per cent in their profit share.

This analysis is based on the trailing 12-month (TTM) profit & loss data of listed firms that are part of the broad-based equity indices in major economies. The current year's data is for TTM ended September this year, while the previous year's data is for TTM ended September 2022. All numbers have been sourced from Bloomberg. The aggregate number for the BFSI sector excludes real estate investment trusts (REITs).

Experts attribute the global boom in BFSI sector earnings to higher lending rates and growth in the loan book. “Fitch’s latest analysis of 100 of the largest debt-issuing developed market banks (DM100) shows strong revenue growth in the first half of CY23, driven by continued growth in net interest income. Fee income picked up after remaining overall flat in 2022, and other income also supported revenue growth after declining in 2022. Overall, net interest income contributed 61 per cent of DM100 banks’ revenue in H1CY23,'” according to analysts at Fitch Ratings.

In terms of earnings growth over the past 12 months, BFSI companies in India were among the top performers globally, while their Chinese counterparts lagged, reporting a contraction in their aggregate earnings.

The combined net profit of 84 BFSI firms that are part of the BSE500 index increased by 41 per cent in US dollar terms to $48.7 billion during the trailing 12 months ended September this year, up from $34.5 billion a year ago. In contrast, the aggregate net profit of BFSI firms in China decreased by 7.7 per cent to $326 billion during the same period. Banks in Japan saw the steepest increase in net profit to $25.8 billion during TTM ended September this year, up from $10 billion a year ago. They were followed by their peers in Western Europe, whose combined earnings increased by 51 per cent year-on-year to $240 billion.

India’s BFSI sector, however, remains small in terms of revenue and profit compared to its peers in the US, China, and Western Europe.