Q1 results: Private banks' net profit up 33.6%, provisions fall 11.5%

Out of the 14 private lenders that have declared results, only one bank booked a net loss in Q1 of FY22 on account of provisions for Covid

Private banks’ net profit rose by 33.6 per cent year-on-year (YoY) in the April-June 2021 quarter and 18.8 per cent sequentially over the January-March quarter when the economy was hit by the second wave.
 
Out of the 14 private lenders that have declared results, only one bank — IDFC First Bank — booked a net loss in Q1 of FY22 on account of provisions for Covid. Provisions and contingencies fell both on a YoY basis (down 11.5 per cent) and sequentially (14.5 per cent) in the reporting quarter. This comes at a time when bank balance sheets are showing signs of stress due to a rise in gross non-performing assets (NPAs) and net NPAs in the June 2021 quarter.
 
Anil Gupta, vice-president, fina­ncial sector rating, ICRA, said while overall headline numbers look ste­ady, banks are still not out of the wo­ods. More restructuring of loans of borrowers hit by Covid is expected in the second quarter. Also, how the third wave wave will unfold is still not clear.
 
This time (in Q1 of FY22), provisions for restructuring have been done based on regulatory norms. In the first quarter last year, many banks made higher provisions as a prudential step for loans under moratorium as restructuring norms came in only later (in August 2020). Also, the fourth quarter of FY21 saw a rise in provisions for slippages after the Supreme Court lifted curbs on classifying accounts as NPA.

Common sample for 14 listed private sector banks. Compiled by BS Research Bureau. Source: Capitaline

Net interest income (NII), a key source of earnings, expanded by 11.1 per cent (YoY) to Rs 54,300 crore and by just two per cent over Rs 53,214 crore in Q4 of FY21. Sandeep Bakh­shi, managing director and chief executive of ICICI Bank, said measures imposed by the authorities to contain spread of the pandemic had a significant impact on collections and recoveries in April and May 2021. Another banker pointed out that the first quarter of the financial year is a slow quarter, and in addition, came the impact of the second wave.
 
Loan growth has slowed and lending rates were slashed substantially in 12 months, impacting interest earnings, but deposits have continued to grow in double digits.
 
Other income rose by 19.7 per cent on a YoY basis to Rs 22,351 crore. But it fell sequentially by 10.1 per cent from Rs 24,858 crore in Q1 of FY21.
 
Asset quality profiles of private banks came under strain during April-June 2021. Gross NPAs rose marginally to Rs 1.88 trillion in June 2021 from Rs 1.84 trillion in June 2020 and Rs 1.82 trillion in March 2021. Net NPAs rose close to just over Rs 0.5 trillion in June 2021 from Rs 0.41 trillion a year ago and Rs 0.44 trillion in March 2021.
 
The extent of additions to the bad loan tally could have been more but for the Reserve Bank of India's (RBI’s) regulatory package in May 2021. Many loans, which would be slipped into the NPA category, are being restructured and treated as standard assets. Many banks also wrote off bad loans, which were fully provided, reducing the tally of outstanding NPAs from the books. HDFC Bank’s write-offs of bad loans doubled to Rs 3,100 crore in April-June 2021 quarter from Rs 1,500 crore in the same quarter last year. IDFC First also wrote-off Rs 1,400 crore of bad loans in Q2 of FY22. The pain is coming predominantly from retail — persons, and households — and micro, small and medium enterprises.
 
Amitabh Chaudhury, managing director and chief executive, Axis Bank, said in the near term, repayment capabilities of a few customer segments were impacted due to medical emergencies or lockdowns.
 
“We, therefore, expect a greater impact in the retail segment than the corporate bank because of the second wave,” he said.