The banks made profits of 1.57 trillion rupees!

If banks move away from prudence in building loan portfolios,
bad hydra-headed loans can resurface and spoil the party

BY TAMAL BANDYOPADHYAY

All but one of the banks had made a profit in the 2022 financial year.
The combined net profit of listed banks, at Rs 1.57 trillion, was at its all-time high last year.
Many thought the first quarter of FY23 would be a different story, as cash losses would eat into profits at most banks and a few.
could even end up in the red.
The 10-year bond yield had risen 61 basis points (bps) in the June quarter, from 6.84% on March 31 to 7.45%.
At one point during the quarter, the rise reached 80 basis points.
A basis point is one hundredth of a percentage point. Bond prices and yields move in opposite directions.
When yields go up and prices go down, banks need to recognize mark-to-market (MTM) losses for securities that are not held in the
so-called held-to-maturity basket.
MTM is an accounting practice in which an asset is valued at market price and not at the price at which it is purchased.
Thus, when prices fall, banks have to meet the difference between the purchase price and the market price of the bonds.
Despite cash losses or lower cash income, the collective net profit of listed banks was Rs 43,472 crore (Rs 434.72 billion) in the
June quarter, 35% more than a year ago.
Quarter after quarter (June versus March quarter), however, the industry’s net profit fell 9.87%.
In the private banking peloton, except for Dhanlaxmi Bank Ltd, all listed banks posted net profits in the June quarter, and for all of them,
it was higher than a year ago.
The Thrissur-based private sector lender reported a net loss of Rs 26.4 crore (Rs 264 million) from a Rs 6.8 crore (Rs 68 million)
net profit for the corresponding period of the previous financial year.
IDFC First Bank Ltd and RBL Bank Ltd made profits against heavy losses in the prior year quarter.
Sequentially, however, at least nine banks posted lower net profits.

HDFC Bank Ltd recorded the highest profit among private banks (Rs 9,195.99 crore/Rs 91.95 billion), followed by ICICI Bank Ltd
(Rs 6,904.94 crore/Rs 69.04 billion) and Axis Bank Ltd (Rs 4,125.26 crore/Rs 41.25 billion).
All public sector banks (PSBs) made profits in the June quarter.
Three of them recorded lower profits than a year ago.
These are Punjab National Bank, Bank of India and State Bank of India.
Sequentially or quarter-on-quarter, however, six of the 12 PSOs saw lower net profits.
In this group, State Bank posted the maximum profit (Rs 6,068.08 crore/Rs 60.68 billion), followed by Bank of Baroda (Rs 2,168.13
crore/Rs 21.68 billion) and Canara Bank (Rs 2,022.03 crore/Rs 20.22 billion).
Private banks’ year-on-year net profits jumped 54.86%, compared to a meager 9.24% increase in PSB profits.
On a sequential basis, private banks’ net profits fell 7.86%, less than PSO’s 9.87%.
Except for very little, most banks’ net interest income or the difference between their cost of deposits and income on loans has increased both years-
over the year and sequentially.
Driven by credit growth and rising lending rates, overall industry net interest income rose 14.3% to Rs 1.46 trillion in
the June quarter against Rs 1.28 trillion in June FY22. In March 2022, it was Rs 1.42 trillion.
However, there is a sharp drop in so-called other income which consists of commission income and cash profits.
Other income from listed banks during the June quarter was in the range of Rs 41,104 crore (Rs 411.4 billion) compared to Rs 57,413 crore
(Rs 574.13 billion) in June FY22 and Rs 57,316 crore (Rs 573.16 billion) in March 2022.
PSBs suffered greater cash losses than their private sector counterparts.
As a result, their other income fell 45% year-on-year and 40.4% quarter-on-quarter.
On the other hand, the drop in other income from private banks was only 4.4% year-on-year and 14% quarter-on-quarter.
At least four private banks — IndusInd Bank Ltd, IDFC First Bank, Jammu & Kashmir Bank Ltd (J&K Bank) and City Union Bank Ltd —
recorded an increase in other income both year-on-year and quarter-on-quarter.
Ditto for Canara Bank and Central Bank of India in the PSB peloton.
State Bank’s other revenue fell more than 80% and Indian Overseas Bank’s revenue fell more than 60% year-on-year and quarter-on-quarter.
on a quarter.
Although many banks experienced cash losses, their commission income covered the losses, but this did not happen with two listed companies.
banks.
These are UCO Bank and Dhanlaxmi Bank. In the process, they ended up losing other income.
Despite cash losses and lower other income, most banks posted strong profits thanks to higher net interest income and,
above all, a decrease in provisions for bad debts.
Their provisions were Rs 33,170 crore in the June quarter, down 41.48% from a year ago and just over 13%.
less than the March quarter.
For Karnataka Bank Ltd, the provision increased both year-on-year and quarter-on-quarter; for Dhanlaxmi Bank, it increased by 130
% year over year.
Among PSOs, the Central Bank and Canara Bank posted higher provisions year-on-year. These are exceptions.
Gross bad loans of all listed banks in the June quarter were Rs 7.16 trillion, down 12.5% ​​year-on-year and 1.35%.
down quarter over quarter.
After the provision, net bad debts were in the region of 1.91 trillion rupees, 25% lower than a year ago and almost 4%.
down from the March quarter.
In percentage terms, IDBI Bank Ltd has the highest gross bad debts (19.9%), followed by Yes Bank (13.45%), J&K Bank
(9.09%), Bandhan Bank Ltd (7.25%) and Dhanlaxmi Bank (6.35%).
After provision, Yes Bank’s net bad debt was 4.17% and J&K Bank’s was 3.02%. IDBI Bank’s net bad debts have
was 1.25 percent.
Only four listed private banks posted higher net bad loans in the June quarter compared to March.
These are J&K Bank (3.02%), Bandhan Bank (1.92%), HDFC Bank (0.74%) and IndusInd Bank Ltd (0.67%).
Among PSOs, the Central Bank has the highest gross NPLs — 14.9%; the Punjab & Sind Bank and PNB hold more than 11%
gross bad debts, followed by Union Bank of India (10.22%), Bank of India (9.3%) and Indian Bank (8.13%).
After provision, the PNB has the maximum net bad loans (4.28%), followed by the Central Bank (3.93%) and the Union Bank (3.31%).
percent).
All banks recorded lower net bad debts. Bank of Maharashtra has only 0.88% net bad loans and State Bank of India 1%
hundred.
Yes, cash losses have dented profits for many banks, but the good story is the continuous improvement in the quality of
assets and stopping new slippages.
With healthy credit growth (14.5%), NPLs will decline further as a percentage, but if banks abandon caution to
By building loan books, hydra-headed bad loans can resurface and spoil the party.

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