A clutch of public sector banks (PSBs) saw higher operating profits in the second quarter of the current financial year as the treasury losses were more than offset by fee income. Major PSBs had seen a loss at an operating level in the previous quarter due to loss on investments.
State Bank of India (SBI) reported a 17% jump in pre-provisioning operating profit (PPOP) while Bank of Baroda (BoB) saw a muted 6% rise. Other banks such as Union Bank of India, Punjab National Bank (PNB), Canara Bank and Bank of India saw their operating profits rising in the range of 8-39%. PNB saw the highest rise at 39% in its PPOP.
The increase in SBI’s operating profit was led by a 10% y-o-y rise in fee income to Rs 5,942 crore and forex income. The lender saw a muted increase in its treasury income at 7% to Rs 457 crore in Q2FY23. On a sequential basis, the bank had reported a loss of Rs 6,549 crore. SBI’s fee-based income rose on higher loan processing charges, cross selling and commissions on government business.
The bank had an opportunity to book mark-to-mark gain in Q2, SBI chairman Dinesh Khara said in an analyst call, adding that the lender consciously decided not to book it, keeping it as reserve for a rainy day.
However, a treasury loss of Rs 435 crore set back BoB’s non-interest income despite a 12% y-o-y rise in fee income. Its treasury loss narrowed on a sequential basis from `588 crore. A lower recovery from technical write-offs also impacted its non-interest income.
The lenders also saw a significant improvements in their net profits, with SBI posting highest-ever quarterly profit of over Rs 13,265 crore. BoB, too, saw a smart 59% y-o-y rise in its profit for Q2FY23. Two exceptions to this were BoI and PNB, who saw their provisions increase resulting in a fall in the bottomline by 9% and 63%, respectively. The rise in provisions was due to higher provisions for bad loans.
Union finance minister Nirmala Sitharaman on Monday said that the 12 PSBs reported a 50% jump in combined net profit to Rs 25,685 crore in Q2. On Monday, shares of SBI and BoB rallied to their all-time highs following their results.
Given that almost all PSBs are doing well on every parameter, there are questions on sustainability of this growth. As per the current loan book of SBI, in case there is any slowdown, it will be mainly due to the overall growth momentum slowing down rather than it being a asset quality or credit cost problem, Kotak Institutional Equities said in a report. On the profitability front, SBI posted a muted 5 basis point expansion in its net interest margin (NIM) compared to its peers. However, the lender’s margins are likely to sustain at these levels as repo rate hikes are implemented, brokerage Macquire Research said in a report. The bank has also guided that full transmission of lending rates will happen in the second half of FY23. There is a high probability that SBI’s lower credit costs can offset the pressure that could emerge from NIM compression, slower fee income growth or a marginally higher cost structure, Kotak Institutional Equities said. Same cannot be said in case of BoB, according to Macquire as NIMs will come down as deposit costs start catching up with a lag. To be fair, the BoB had beat its NIM estimate by 20 bps in Q2FY23.