Banking sector Q2FY22 review: PSU banks record highest profits in 24 qtrs due to 23-qtr low GNPA ratio

Many banks like IDFC First Bank, DCB Bank, Equitas SFB continue to have low core provision coverage. Credit off-take picked up for the banking sector in Q2FY22. Best of fee income may be behind for the banking sector as it is likely to get impacted going ahead, given the fact that credit card off-take in Q2FY22 was one of the best they have seen in last many years.

The outperformance in the banking sector on a sequential basis was led by PSU banks for the third quarter in a row. PSU banks reported their highest quarterly profits in the last 24 quarters at Rs 17699.4 crore, up 92.5 percent YoY and 21.5 percent QoQ. None of the PSU banks have reported net loss in Q2FY22. The massive turnaround, QoQ, in profits, was led by UCO Bank, Bank of Baroda (2nd quarter in a row), Bank of India, Union Bank, among others. The GNPA ratio of PSU banks is at 9.09 percent vs 9.71 percent QoQ.

Private banks have underperformed PSU banks in Q2FY22 for the third quarter in a row, on profit growth and GNPA movement QoQ. Four private banks -- Bandhan bank, Ujjivan SFB, South Indian Bank & Suryoday SFB -- reported net loss. Microfinance has been impacted the most for private banks.

Loan growth remained better than the industry average for private banks at 12 percent YoY and 3.7percent QoQ. Hence, they continued to gain market share as in the last few years. Asset quality improved marginally with GNPA ratio at 4.3 percent vs 4.54 percent QoQ. In absolute value, their NNPA decline was at 6.2 percent QoQ when compared to 7.7 percent QoQ for PSU banks. Their core provision coverage ratio improved to 70.33 percent when compared to 68.93 percent reported in Q1FY22. Amongst private banks, large caps are taking away market share from mid & small private banks and also, many of the PSU banks.