By Shashank Didmishe
Major public sector banks (PSBs) have shown a significant variance in their earnings for the first quarter of the current financial year, with some of the lenders showing significant year-on-year (y-o-y) improvement in their profits and other reporting a decline in their bottom line.
Although non-interest income did weigh on the profits of private sector banks, they fared better in comparison to their government-owned peers.
State Bank of India (SBI) on Saturday reported a 7% decline in its profit. While Bank of India and Punjab National Bank saw a much steeper decline of 22% and 70% in their net profit, Union Bank of India, Bank of Baroda and Canara Bank posted Y-oY increase of between 32% and 79% in profit.
The fall in SBI’s profit was mainly on account of mark-to-market (MTM) losses in treasury operations, which led to an 80% Y-o-Y fall in non-interest income. The bank has posted MTM loss of Rs 6,549 crore in Q1. SBI can write back of Rs 4,900 crore in case the G-Sec yield remains at 7.30%, the Friday’s closing level, and has made provisions for the losses in case the yield climbs to 7.45%, chairman Dinesh Khara said. However, with some moderation in inflation and stabilisation of the currency, Khara expects that yields may also cool off in the second or third quarter.
PNB reported a sharp fall in its bottom line due to elevated treasury losses and weak growth in net interest income (NII), Kotak Institutional Equities said in a report. The bank has booked an MTM loss of Rs 1,409 crore in Q1FY23.
Canara Bank posted a higher non-interest income, led by treasury, recoveries from written-off accounts and other miscellaneous income.
Bank of Baroda posted better interest income compared to PNB and steeper reduction in provisions than Bank of India, which led to a robust 80% Y-oY increase in its profit despite a big treasury loss. Despite the improvement in credit growth across segments, the bank could have done better on margin, although the net interest margin (NIM) remained with the management guidance of expansion of 10 bps compared to FY22 levels, Nomura said in a note.
SBI saw an expansion of 8 bps YoY in its domestic NIM during Q1, led by retail and corporate loan growth. The bank is aiming to at least maintain the current level of margin throughout the year, Khara said.
PSBs saw an improvement on the asset quality front. SBI saw a decline in its NPA ratio and the bank does not expect any major challenges going ahead from the retail and corporate books. The bank may see some bad loans from the SME-restructured loans and has made provisions for the same. SBI’s gross NPA ratio fell 6 bps sequentially to 3.91% and the net NPA ratio declined 2 bps to 1%.
PNB reported a 50-bps sequential decline in gross and net NPA to 11.3% and 4.3%, respectively. Gross slippages were down sequentially, but stayed elevated compared to other banks. PNB’s performance on the asset quality has generally lagged peers with segmental NPAs being much higher than peer PSBs, Kotak Institutional Equities said.
Bank of Baroda earlier guided the slippage ratio to be in the range of 1.5-2%, which currently stands at 1.7%. The management believes there is scope to improve it further, analysts at Nomura said.