The financial landscape of public-sector banks (PSBs) in India has witnessed a remarkable surge in profitability during the first quarter (Q1) of the current financial year (FY24). With a staggering 124.8 percent year-on-year (Y-o-Y) growth in net profit, reaching Rs 34,418 crore, these banks have showcased their resilience in the face of economic challenges. This impressive growth has been fueled by a combination of factors, including treasury gains, substantial growth in net interest income (NII), and a commendable uptick in other income.
A Closer Look at the Numbers: Profits and Performance
The surge in net profit for PSBs during Q1 FY24 is undoubtedly a commendable feat, and it comes as a result of astute financial management. The strong growth in NII, supported by a robust credit offtake, played a pivotal role in bolstering the bottom line. Additionally, the increase in other income, encompassing fees, commissions, and revenue from the treasury stream, contributed significantly to this healthy financial performance.
Role of State Bank of India
The State Bank of India (SBI), as the nation’s largest lender, has played a significant role in this surge. Notably, SBI contributed almost half of the net profit of PSBs during Q1 FY24. This underscores the leadership and resilience of the institution in steering the overall performance of the sector.
Quarter-on-Quarter Dips
While the Y-o-Y performance was remarkable, a slight dip in net profit was observed on a quarter-on-quarter (Q-o-Q) basis. The net profit declined by 0.2 percent, attributed to a 0.8 percent drop in NII and a 17.6 percent reduction in other income. These fluctuations reflect the dynamic nature of the banking industry and the ever-changing economic landscape.
Lending Rates and Loan Growth
The substantial growth in NII can be attributed to a noteworthy expansion in lending rates. PSBs have reported a remarkable 26.3 percent Y-o-Y increase in NII, amounting to Rs 99,114 crore. This surge was fueled by a substantial 16 percent Y-o-Y growth in loan volumes until the end of June. The Reserve Bank of India’s strategic repo rate hikes have played a role in driving this trend, while public sector banks demonstrated a proactive approach to rate transmission on fresh loans.
Asset Quality and Contingencies
The reduction in provisions and contingencies, encompassing standard loans and non-performing assets (NPAs), reflects the improved asset quality within a favorable business environment. Gross NPAs, a key indicator of asset quality, saw a significant decline of 23.8 percent Y-o-Y, signaling a commendable effort in managing credit risks and enhancing recovery mechanisms. Net NPAs also witnessed a substantial drop of 36.2 percent, underlining the success of efforts to address bad loans.
