Despite a robust 11.7% year-on-year surge in credit growth led by retail, agriculture, and MSME lending, public sector banks saw their collective net profit dip 1.5% in the September quarter when adjusted for a one-time gain by State Bank of India, due to weaker treasury income and muted recoveries.
Out of the 12 public sector banks, Bank of Baroda and Union Bank of India reported a year on year fall in net profit during the quarter ended September due to fall in other income and lower recovery from written off accounts.
After seeing high double-digit growth for four quarters, other income stood at 8.4% on year in July-September, this was mainly attributable to weaker treasury income.
SBI was an exception, simply because it completed the divestment of 13.18% stake in YES Bank to Sumitomo Mitsui Banking Corporation (SMBC) of Japan for Rs 8,888.97 crore. Post the divestment, SBI holds 10.8% stake in YES Bank.
Net interest income of banks was up 2.5% on year which is high on a sequential basis, but was muted when compared to a 6.1% growth reported a year ago. The net interest margins continued to moderate in the reporting quarter, and bankers said that margins would see an uptick from hereon if there are no further repo rates by the Reserve Bank of India.
“Transmission of the liability side is yet to take place, particularly with respect to the retail term deposits and the bulk deposits. So, we feel that the full transmission should happen by the Q3 quarter of this financial year. And once that happens, the NIM should start stabilising, improvement should start for the system,” Rajneesh Karnatak, MD and CEO of Bank of India said in the post earnings media call.
The average loan growth and deposit growth of the PSU banks stood at 11.7% and 9.4% on year, data showed. The loan growth was mainly led by the RAM (retail, agriculture and MSME) segment. Apart from Union Bank of India, all other banks reported a double-digit growth in advances.
In term of deposits, the public sector banks saw a slight moderation with the average CASA ratio at 38.58% as on September 30 from 38.74% a quarter ago and 39.49% a year ago. In the coming quarters banks aim to increase this ratio further in order to strengthen their margins, bankers said in the post earning interactions.
“Going forward, we expect the demand for credit to continue in the second half. Looking at the trend, the deposit and credit growth of scheduled commercial banks may remain in the range of 11-12% during FY26,” CS Setty, Chairman State Bank of India said in the post earnings call. “However, risk persists from the global commodity markets and potential spillovers from the trade disruptions,” he added.
The asset quality of all 12 state owned banks improved on a sequential basis in the quarter ended September. Bank of Maharashtra has the lowest gross NPA ratio at 1.72%, followed by the State Bank of India at 1.73% as on September 30.
Provisions of the state-owned bank fell by nearly 11% on year and by 7.7% on a sequential basis, the data showed. State Bank of India, Punjab National Bank, Canara Bank and UCO Bank were the outliers and saw a rise in provisions on a year-on-year basis.
Public sector banks seem comfortable to implement the expected credit loss guidelines. According to a report by CareEdge Ratings, the incremental provisioning could reduce overall banking sector capital adequacy by approximately 40-70 basis points. “The impact on public sector banks is expected to be higher at ~60-90 basis points whereas private sector banks might see a lower impact of ~20-50 basis points,” the report said.
