Ample liquidity in the system has resulted in banks reporting the highest profits in 23-quarters in the first quarter of the fiscal. Interest rates are near multi-year lows and low-interest rates have also meant that the cost of funds for banks have fallen sharply too.
The profit momentum has continued from FY21, wherein, the banking sector had reported, its highest yearly profits in the last 5 years. This has been achieved despite the impact of the second wave of COVID-19.
In fact, it’s been such a good quarter, that none of the PSU banks has reported a net loss. The PSU banks’ balance sheet is as strong as private counterparts in terms of provision coverage ratio, which is at 68.8 percent for PSU Banks versus 69.2 percent for private banks. One can expect this trend of higher credit cost to continue in FY22 as banks’ strengthen their balance sheet.
Let’s take a closer look at what the Q1FY22 reported numbers are telling us:
| Net profit / (Loss) | PSU Banks (Rs cr) | Pvt Banks (Rs cr) | Total (Rs cr) |
| Q1FY22 | 14,615 | 17,560 | 32,175 |
| Q4FY21 | 10,167 | 15,940 | 26,107 |
| Q3FY21 | 7,766 | 19,749 | 27,515 |
| Q2FY21 | 9,165 | 18,685 | 27,850 |
| Q1FY21 | 6,001 | 14,319 | 20,320 |
| Q4FY20 | (26,444) | 5,477 | (20,967) |
| Q3FY20 | (8,474) | 16,460 | 7,986 |
| Q2FY20 | (4,186) | 11,399 | 7,213 |
| Q1FY20 | 123 | 13,298 | 13,421 |
| Q4FY19 | (30,905) | 10,375 | (20,530) |
| Q3FY19 | (11,598) | 11,961 | 363 |
| Q2FY19 | (14,716) | 10,559 | (4,157) |
| Q1FY19 | (16,622) | 10,119 | (6,503) |
| Q4FY18 | (62,681) | 7,597 | (55,085) |
| Q3FY18 | (18,107) | 11,533 | (6,575) |
| Q2FY18 | (1,208) | 10,699 | 9,491 |
| Q1FY18 | (307) | 12,000 | 11,693 |
| Q4FY17 | (10,008) | 10,991 | 983 |
| Q3FY17 | 598 | 10,738 | 11,336 |
| Q2FY17 | 3,411 | 10,066 | 13,477 |
| Q1FY17 | 238 | 11,038 | 11,276 |
| Q4FY16 | (18,355) | 8,971 | (9,384) |
| Q3FY16 | (10,796) | 11,633 | 837 |
Q1FY22 saw the impact of the pandemic on the banks' operations. Slippages remained elevated, restructured books increased for many and credit cost was high due to a rise in stress in the balance sheet.
Sequentially, PSU banks have outperformed private banks for the second quarter in a row.
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The worst of the corporate woes are behind for the banking sector. In Q1FY22, incremental stress has continued to come from the retail and MSME/SME sectors.
PSU banks also witnessed a decline in their gross non-performing asset (GNPA) ratio compared to the previous quarter. However, they continued to slip on market share due to risk aversion and lower capitalization than their private counterparts.
Write-offs continued to remain high in Q1FY22. This was on account of the fact that banks saw elevated slippages continue in Q1FY22 due to lockdowns and repayment issues. Another point to factor in for high write-offs is that it helps in lowering stress on the future capital level of the banks.
From the data below, the lowest write-offs, i.e. write-offs as a percent of slippages have been reported J&K Bank, South Indian Bank, Equitas SFB, Punjab & Sind Bank & Central Bank of India.
The highest write-offs as percent of slippages have been reported by Bank of Maharashtra, Bank of Baroda, Union Bank of India & Federal Bank.
Bandhan Bank had no write-offs in Q1FY22. Slippages were elevated for SBI, PNB, HDFC Bank, ICICI Bank and Union Bank of India.
| Bank | Write off, Rs cr | Slippage, Rs cr |
| AU Small Fin Bk | NA | 250.0 |
| CSB Bank | NA | 437.0 |
| Karur Vysya Bank | NA | 519.0 |
| Suryoday SFB | NA | 100.0 |
| Union Bank of India | 4,734.0 | 7,049.0 |
| Bank of Baroda | 4,660.0 | 6,194.0 |
| SBI* | 3,468.0 | 16,298.0 |
| Axis Bank | 3,341.0 | 6,518.0 |
| HDFC Bank | 3,171.6 | 7,300.0 |
| Indian Bank | 2,713.0 | 4,412.0 |
| Canara Bank | 2,574.0 | 4,391.0 |
| PNB | 2,247.0 | 10,168.0 |
| ICICI Bank | 1,589.0 | 7,231.0 |
| Bank of India | 1,527.0 | 3,942.0 |
| IDFC Bank | 1,400.0 | 2,800.0 |
| Bank of Maha | 1,001.0 | 937.0 |
| IndusInd Bank | 938.0 | 2,762.0 |
| UCO Bank | 853.0 | 1,708.0 |
| IOB | 793.0 | 1,245.0 |
| RBL Bank | 759.0 | 1,342.0 |
| IDBI Bank | 599.0 | 1,332.0 |
| Federal bank | 439.0 | 689.0 |
| YES Bank | 350.0 | 2,343.0 |
| City Union Bank | 257.8 | 482.2 |
| Karnataka Bank | 183.2 | 414.0 |
| Central Bank of India | 98.0 | 1,281.0 |
| DCB Bank | 81.6 | 519.6 |
| Punjab & Sind Bank | 32.5 | 442.8 |
| South Indian Bank | 17.4 | 883.4 |
| Equitas Holdings | 11.5 | 374.9 |
| J&K Bank | 0.4 | 613.0 |
| Bandhan Bank | - | 1,680.0 |
Overall
The sector has seen a rise in stressed assets, especially, the restructured portfolio. GNPA ratio increased to 8.37 percent vs 8.26 percent quarter on quarter. In the same period, in absolute value, thanks to PSU banks, GNPA rose marginally, by 0.4 percent. Overall, the provision coverage ratio of the banking sector is at a 5 quarter low of 68.8 percent versus 69 percent.
Many banks, continue to have low core provision coverage like IDFC First Bank, DCB Bank, Equitas SFB, etc. From large banks, Kotak Mah Bank has a PCR of 64.8 percent. Credit off-take has remained weak till July for the banking sector. Loan growth could remain weak in Q1FY22, despite favourable base effect, before picking up by the festive season.
| Banks (Rs cr) | Q1FY22 | Q1FY21 | Q4FY21 | YOY | QOQ |
| PAT | 32,175 | 20,320 | 26,107 | 58.3 | 23.2 |
| GNPA | 822,524 | 841,693 | 819,133 | (2.3) | 0.4 |
| NNPA | 256,576 | 255,085 | 253,110 | 0.6 | 1.4 |
| GNPA (%) | 8.37 | 9.04 | 8.26 | ||
| NNPA (%) | 2.61 | 2.74 | 2.55 |
PSU Bank’s continue their Q4FY21 momentum
The outperformance in the banking sector on a sequential basis was led by PSU banks for 2nd quarter in a row. PSU banks reported the highest quarterly profits in the last 23 quarters at Rs14615.4cr, up 143.6 percent YOY & 43.8 percent QOQ. None of the PSU banks has reported a net loss in Q1FY22, which is an achievement in itself.
The massive turnaround in profits was led by Bank of Baroda, from loss to profits, Central Bank of India, from loss to profits & PNB saw a sharp rise in profits (QOQ). The GNPA ratio of PSU banks was at 9.71 percent vs 9.69 percent QOQ. The ratio increased due to a decline in the overall loan book of the PSU banks.
| PSU Banks (Rs cr) | Q1FY22 | Q1FY21 | Q4FY21 | YOY | QOQ |
| PAT | 14,615.37 | 6,000.70 | 10,166.92 | 143.6 | 43.8 |
| GNPA | 647,978 | 684,868 | 653,221 | (5.4) | (0.8) |
| NNPA | 202,301 | 212,300 | 202,019 | (4.7) | 0.1 |
| GNPA (%) | 9.71 | 10.53 | 9.69 | ||
| NNPA (%) | 3.03 | 3.26 | 3.00 |
Private banks: Leaders are walking away with market share
Private banks have under-performed to PSU banks in Q1FY22, for the 2nd quarter in a row, on profit growth & GNPA rise QOQ (amount wise). Four private banks reported a net loss, i.e. IDFC First Bank at Rs 630 crore, RBL Bank at Rs 459.5 crore, Ujjivan SFB at Rs233.5 crore and Suryoday SFB at Rs 47.7crore (the debutant on street), in Q1FY22.
The loan growth remained better than the industry average for private banks at +11.1 percent, compared year-on-year and -0.18 percent quarter-on-quarter. Hence, they continued to gain market share, which they have been doing for the last few years now.
The asset quality saw deterioration with GNPA rising to 4.54 percent versus 4.31 percent QOQ. In absolute value, their NNPA rise was at +6.2 percent QoQ when compared to +0.1 percent QoQ for PSU banks. Their core provision coverage ratio declined to 68.9 percent when compared to 69.2 percent reported in Q4FY21.
| Pvt Banks (Rs cr) | Q1FY22 | Q1FY21 | Q4FY21 | YOY | QOQ |
| PAT | 17,560 | 14,319 | 15,940 | 22.6 | 10.2 |
| GNPA | 174,546 | 156,826 | 165,912 | 11.3 | 5.2 |
| NNPA | 54,274 | 42,785 | 51,090 | 26.9 | 6.2 |
| GNPA (%) | 4.54 | 4.54 | 4.31 | ||
| NNPA (%) | 1.4 | 1.2 | 1.3 |
(Edited by : Abhishek Jha)
First Published: Aug 15, 2021 9:36 PM IST
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