Public sector banks posted a 139.6 percent growth in net income in the first quarter of FY22, year-on-year, benefiting from an increase in other income (34.8 percent) and a decrease in provisions (10.7 percent).
However, net interest income (NII) showed moderate growth of 5.4% in a quarter marked by low credit underwriting due to the impact of Covid-19 on the Indian economy.
The asset quality of public banks remained stable with a decline in gross non-performing assets (NPA) year on year and sequentially. Net NPAs – bad debts after provisions – decreased annually (down 5.1%) but gradually increased by 1.6% compared to March 2021.
Anil Gupta, vice president and head of financial sector rating at ICRA, said the performance of public banks in the first quarter of FY22 is in line with expectations and will continue to be profitable for the FY 22. The overall figure for asset quality (NPA) looks good.
“At the same time, we have to keep in mind that in the case of PSBs, restructuring was substantial during the quarter (retail and SMEs),” he said. The behavior of the restructured portfolio will need to be watched closely as this is the first time that personal loans have been overhauled on a large scale.
The burden of the provision remained under control due to two factors. First, the requirement to set aside money for inherited business lending is coming to an end. The reserve requirement for restructured accounts is lower than what banks must provide if the accounts become NPAs or bad debts, the bankers said.
On net interest income, which is the mainstay of banks’ profits, State Bank of India (SBI) Chairman Dinesh Khara said the NII is showing moderate growth as the yield on advances (YOA) was decreasing. His bank’s domestic ledger YOA fell from 8.35% in T1FY21 to 7.42% in T1FY22.
In addition to weak demand for credit in the midst of an economic crisis, top-rated companies had the option of borrowing money at a cheap rate when the system was overflowing with cash. This created intense competition among banks for a share of business loans, leading to lower yields, the bankers said.
Year-on-year credit growth has remained subdued since the start of the Covid-19 pandemic last year compared to high growth in deposits. While commercial bank lending in India increased 6.5% through mid-July 2021 and deposits increased 10.7%, according to data from the Reserve Bank of India.
As easing lockdowns boost the economy, lenders expect credit to improve, particularly from the second half of the year.
AK Das, Managing Director and CEO of Bank of India, said that with an increase in the growth of low-cost loans and deposits, the NIM is expected to be around 2.5% by March 2022 The BOI’s net interest margin fell to 2.16 percent for Q1 from 2.48 percent in the prior year period.
Rajkiran Rai G, chief executive and managing director of Union Bank, said the first quarter of fiscal 22 was disrupted due to a second wave of Covid-19 infections. The economy appears to be recovering with the mobility of high frequency data signaling and the increase in energy consumption and rail freight.