Q1 results: State-owned lenders' net profit jumps 140% as provisions dip

The asset quality of state-owned banks remained stable with a fall in gross non-performing assets on y-o-y basis and sequentially

Thanks to a robust rise in other income and dip in provisions, public sector banks saw their net profit grow 139.6 per cent year-on-year (YoY) in the first quarter of financial year 2021-22 (Q1FY22).

 

Other income rose 34.8 per cent YoY, and provisions declined 10.7 per cent. How­ever, growth in net interest inc­ome (NII) was subdued at 5.4 per cent, in a quarter mar­ked by low credit offtake bec­ause of the second wave of Covid-19. The asset quality of state-ow­ned banks remained stable with a fall in gross non-perfor­ming assets (NPAs) on YoY and sequential basis. Net NPAs, bad loans after provisions, fell 5.1 per cent YoY, but inched up 1.6 per cent sequentially.

 

Anil Gupta, vice-president and head of financial sector ratings at ICRA, said state-owned banks’ performance in Q1 was along expected lines and they will continue to be profitable through FY22. The headline number for asset quality (NPAs) looks good.

 

However, he said, one has to keep in mind that restructuring in the quarter was substantial in the case of PSBs (retail and SMEs). The behaviour of restructured book will have to be monitored closely since this is first time retail loans have been recast on such a large scale, he added. The provision burden has rema­ined in control on account of two factors. The requirement to set aside money for legacy stressed corporate loans is nearing its end. The provision requirement for restructured accounts is less than what banks have to provide if the accounts become NPA or bad loan, bankers said.

 

As for NII, the mainstay of banks’ earnings, State Bank of India (SBI) Chairman Dinesh Khara said it showed muted growth as yield on advances (YOA) declined. The bank’s YOA for its domestic book fell from 8.35 per cent in Q1FY21 to 7.42 per cent in Q1FY22.

 

Apart from tepid credit demand amid the economic slump, the better rated corporate houses had the option of borrowing at cheaper rates when the system was flush with liquidity. This spurred intense competition amongst banks as they looked to garner a larger share of corporate loan business, leading to a fall in yields, bankers said.

 

Credit growth has remai­ned subdued since the outbreak of the pandemic last year as against elevated growth in deposits. While the loans of commercial banks in India expanded by 6.5 per cent till middle of July 2021 and dep­osits rose by 10.7 per cent, according to data from the Reserve Bank of India. With gradual easing of lockdowns, lenders are expecting improvement in credit offtake, especially from the second half.

 

A K Das, managing director and chief executive, Bank of India, said with uptick in loan growth and benefit of low-cost deposits, the NIM is expected to be about 2.5 per cent by March 2022. BOI’s NIM fell to 2.16 per cent in Q1, against 2.48 per cent a year ago.