Private Banks’ Profit Jumps 24% On High Offtake, Lower Credit Cost

MUMBAI: Listed private sector banks reported a 23.8 per cent year-on-year (YoY) growth in net profit at Rs 43,543 crore in the third quarter of Financial Year 2023-24 (Q3 FY24) on, gaining from high credit offtake and fall in costs.

Sequentially, however, profits sharply moderated with just 1.8 per cent growth compared to Q2 FY24 as the cost of funds dented these banks’ net interest income (NII).

NII expanded by 16.3 per cent YoY in Q3 FY24 to Rs 89,878 crore, reflecting the benefit from repricing of loans and fresh credit disbursement at higher rates. Sequentially, NII grew by 3.6 per cent, according to analysis of data compiled by BS Research Bureau for listed private banks.

Sanjay Agarwal, senior director at CareEdge ratings agency, said while credit offtake is high banks prioritised maintaining good asset quality amid competition. This limits the room for increasing lending rates and yield. On the liabilities side, repricing short and medium terms deposits, aka rise in interest rates, is also exerting pressure.

Data from the Reserve Bank of India showed that for private banks weighted average rates on outstanding deposits increased from 5.89 per cent in December 2022 to 6.76 per cent in November 2023. However, the rise in weighted average lending rate on outstanding term loans was much less: From 10.48 per cent in December 2022 to 10.64 per cent in November 2023.

The net interest margin (NIM) of banks is under pressure. The NIM of HDFC Bank, India’s largest private sector lender, declined from 4.1 per cent in Q3 FY23 to 3.4 per cent in Q2 and Q3 of FY24. Jefferies, a foreign broking house, said in a research note HDFC Bank’s NIM was flat quarter-on-quarter (QoQ) even as the impact of Incremental Cash Reserve Ratio (ICRR) and surplus liquidity receded. An uptick in retail deposit mobilisation and lending will lift NIM.

ICICI Bank’s NIM declined to 4.43 per cent in Q3 FY24, compared to 4.53 per cent in Q2 FY24 and 4.65 per cent in Q3 FY23. Global ratings agency Standard and Poor’s said ICICI Bank’s NIM is likely to decline further by about 10 bps over the next quarter as the cost of deposits may rise.

ICICI’s other income covering fees, commissions and revenue from the treasury stream grew by 25.9 per cent YoY to Rs 34,407 crore in Q3 FY24 from Rs 27,333 crore in Q3 FY23. Sequentially, it expanded by 5.9 per cent over Rs 32,477 crore in Q2 FY24.

Private sector banks’ provisions and contingencies, including those for standard loans and non-performing assets (NPAs), dipped by 6.3 per cent YoY to Rs 10,263 crore in Q3 FY24. Sequentially, provisions and contingencies rose by 37.3 per cent from Rs 7,477 crore in Q2 FY24. This reflects lower asset quality pressure amid a conducive business and economic environment. (Are the numbers for ICICI or private banks in general?)

Asset quality profile remained robust with the gross NPAs declining by 7.6 per cent YoY to Rs 1.26 trillion at the end of December 2023 from Rs 1.36 trillion a year ago. Sequentially, they declined by 1.4 per cent from Rs 1.28 trillion at the end of September 2023.

Net NPAs, or bad loans which are yet to be provided for, also fell by 1.6 per cent YoY to Rs 29,539 crore in December 2023. The figure was Rs 30,031 crore a year ago. Sequentially, they rose 0.4 per cent from Rs 29,414 crore at the end of September 2023.

Source: Business Standard

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