Public sector banks (PSBs) saw their pre-provision operating profit (PPoP) rise nearly 35% year-on-year (y-o-y) during the January-March quarter, ahead of the 3% growth clocked by their peers from the private sector, Kotak Institutional Equities said in a note on Monday.
While an increase in net interest income (NII) contributed to the growth, trading gains accounted for nearly a half of the banking system’s income during the quarter. “Revenue growth was led by NII growth which grew 15% y-o-y as loan growth picked up to ~8% y-o-y and NIM (net interest margin) recovered from their lows. Treasury contribution to PBT (profit before tax) was meaningful at ~50%,” the brokerage said in the note.
State-owned banks witnessed a 17% year-on-year growth in net interest income while private banks were close on their heels with a 16% NII growth. These figures were higher than the corresponding loan growth figures.
“Loan growth for PSU banks under coverage was the highest in five quarters but still modest at ~5%. Private banks loan growth also improved to ~15% y-o-y from ~12% in 3QFY17,” Kotak wrote.
Growth across segments appeared to be better sequentially as the quarter ended December had seen the impact of demonetisation, it said.
The one exception to this was corporate lending. The brokerage observed that the loan growth at PSBs was partly supported by loan buyouts from NBFCs and private banks. Corporate loan growth is unlikely to recover anytime soon, Kotak wrote, as there are few signs of a pick-up in the capex cycle. Although there are “positive green shoots” in sectors such as renewables and roads, the quantum is too small to make a difference to the overall loan growth.