Tag: banking sector

India’s banking sector recorded highest profit in last 26 quarters

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Profit momentum for India’s banking sector continued from the financial year 2021 to 2022 as the sector reported its highest profit in the last 26 quarters or six and a half years and private banks have been the better performers.

The banking sector saw its profit after tax (PAT) grow by 86.9 percent year-on-year (YoY) on the back of the lowest stress on the balance sheet in the last four years in the banking sector.

For the sector, strong recoveries and upgrades aided their asset quality while lower slippages quarter-on-quarter (QoQ) ensured that credit cost remained on the lower side.

Private banks are back with a bang

Many private banks witnessed high operating expenses (opex) in the March quarter ended 2022, just like they did in the third quarter which impacted their operating profits. However, lower provisions, for the majority of them, meant that profit growth was robust.

Private banks have performed well on account of lower slippages and strong recovery. Robust growth in PAT (QoQ) was seen for Bandhan Bank, DCB Bank, YES Bank, Kotak bank, RBL Bank, IDFC First Bank, etc.

While Suryoday SFB was the only private lender to report a net loss in the March quarter ended 2022. Loan growth remained better than the industry average for private banks, up 16.2 percent YoY & 5.7 percent QoQ. Hence, they continued to gain the market share, which they have been doing for the last few years now.

Talking about asset quality, GNPA declined by 6.6 percent and NNPA declined by 11.7 percent QoQ. Hence, private banks now have a net NPA below 1 percent – the first time in 26 quarters.

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How PSU banks performed in Q4FY22

The decline in stress has been the most for public sector undertakings (PSU), which also meant that PSU banks reported the highest PAT in 26 quarters. However, the pace of pat growth, on a QoQ basis, is the slowest in the last five quarters, at a mere 0.3 percent.

Massive turnaround, QoQ, in profits, was led by Indian Bank, Union Bank, IOB, IDBI Bank and Punjab & Sind Bank. Recovery was strong for PSU banks in the fourth quarter ended 2022 like it was in the third quarter.

Value-wise, gross non-performing assets (GNPA) are down 2.9 percent QoQ & net non-performing assets (NNPA) is down 8.1 percent QoQ. None of the PSU banks has reported a net loss, for the fourth quarter in a row.

Here are the best performing private sector and PSU banks:

Also Read: Explained: How rising interest rates affect banks

Operating profit growth – a key metric

One of the key points in the results has been the operating profits which have been on the weaker side due to several reasons. While treasury losses have impacted some PSU Banks, for private banks, higher opex, w.r.t. branch expansion or loan book from direct selling agents (DSA) has impacted their operational performance.

Out of 35 lenders, 8 lenders saw a decline in operating profits, QoQ. These include the likes of HDFC Bank, CSB Bank, Punjab & Sind Bank, Federal Bank, IDBI Bank, Indian Bank, UCO Bank and Suryoday SFB.

Overall, operating profit for the sector was at Rs 103,614 crore, up 4.6 percent YoY and 3.8 percent QoQ.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Banks can’t take heart from improving recoveries as RBI warns of possible rise in bad loans

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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RBI Governor Shaktikanta Das on Monday said that banks keeping a close watch on non-performing assets (NPAs) was the need of the hour even as the central bank shifts its focus to containing inflation from growth.

Das, in an interview with CNBC-TV18, said that expecting more repo rate hikes in upcoming monetary policy meetings was a ‘no brainer’.

The RBI, in an unscheduled monetary policy announcement earlier this month, hiked the repo rate — the rate at which the central bank lends money to commercial banks — by 40 basis points to 4.4 percent. One basis point is one-hundredth of one percentage point.

Experts suggest the central bank should hike the key rate by at least 100 basis points to control inflation which has hit multi-year high recently.

Consecutive hikes in interest rate force banks to raise their lending rates. This, amid a relatively slow growth rate, leads to impact on the borrowers’ capacity to pay debt.

Das told CNBC-TV18 that both public sector and private banks have been alerted on the need to maintain NPAs in check. He highlighted that the overall gross non-performing assets (GNPA) for the banking sector are at 6.5 percent. However, on a positive note, collection efficiency has improved for banks, so the situation is not grave as of now, mentioned Das.

“You see the GNPA or the gross NPA remains at 6.50 percent. The currency and finance report was basically saying that this is an area which has to be watched, because it depends on again, so many factors — how the salaries of people are coming, the EMIs and other payments,” he said.

“The collection efficiencies have improved in almost all the banks, and they are almost at 100 percent,” said Das, adding that lenders have raised substantial amount of capital during the COVID period and have various capital raising plans going forward as well.

Here’s a look at GNPA as percentage of total loans: 

(source: Moneycontrol)

On being asked if the interest rate hikes will have a dampening effect on banks’ credit offtake, Das explained that there are numerous factors besides interest rate which affect a lender’s credit growth such as consumption, demand, the overall macroeconomic fundamentals and so on. He expects bank credit growth to remain steady.

“Credit offtake depends on a multiplicity of factors. It depends on how well the economy is doing, how the private consumption, private demand is picking up,” said Das.

“I think bank credit offtake should remain steady. The latest number I have… is of bank credit growth being about 11 percent year-on-year,” said Das.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Kotak Mahindra Bank Q4 results studded by records in lending, margins, and bad loans

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Kotak Mahindra Bank’s March quarter result proved to be a star-studded one.

The private lender on Wednesday reported a 65 percent jump in standalone net profit at Rs 2,767.40 crore in the three months ended March 2022, with sequential improvement in asset quality of the lender.

Kotak Mahindra’s net profit exceeded analysts’ estimates by a wide margin.

It recorded an all-time high net interest margin (NIM), a key measure of profitability at 4.78 percent, up 39 basis points (bps) from last year.

The Bank’s loan growth – at 21.3 percent (year-on-year) – was also the best in the last 13 quarters while its operating profit growth of 24 percent (quarter-on-quarter) was also the best in the last 26 quarters.

The bank’s net customer additions stood at 2 million in the March quarter as compared to 1.1 million a year ago.

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On the asset quality front, Kotak Mahindra Bank’s gross non-performing asset ratio stood at 2.34 percent, a five-quarter low.

Another feather in the cap was the return on assets – which came in at 2.68 percent – the highest amongst large banks.

The private sector bank’s board also recommended a dividend of Rs 1.1 per share for the financial year ended March.

Shares of Kotak Mahindra Bank gained over 2 percent at Rs 1,812 on BSE after the results were announced.

(With inputs from Abhishek Kothari)

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Banks witness highest incremental credit growth in last three years

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The banking sector has witnessed the highest incremental credit growth in the last three years at Rs 9.39 lakh crore. However, the credit-deposit (CD) ratio at 72.22 percent during FY 2022 has been the lowest in the last 12 years. Credit-deposit ratio stood at 71.98 percent a fortnight ago.

On an incremental basis, the CD ratio was the highest in three years at 69.5 percent, CNBC research showed. The incremental CD ratio is the portion of deposits that the banks use to extend loans. The ratio is an indication of the bank’s dependence on borrowed funds to fund its credit growth.

A report by the economic research department of the State Bank of India (SBI) had earlier revealed that there was visible expansion in the credit growth across sectors such as chemical, electronics, telecom, NBFCs, petroleum, gems and jewellery and infrastructure including power and road in the December quarter. Big-ticket disbursements were witnessed in these sectors during the third quarter, the SBI report said.

India’s total money supply (M3) stood at Rs 16,40,018 crore till March 25, 2022 for the last financial year, an RBI report said.

According to the CNBC-TV18 research, M3 growth was at 8.7 percent year-on-year against 8.95 percent year-on-year, a fortnight ago. Deposit to M3 ratio stood at 80.36 percent vs 80.27 percent a fortnight ago.

Apart from the currency notes held by the public, M3 comprises all demand deposits with the bank, deposits of all the banks with the RBI and the net time deposits of all the banks in the country.

Deposits were up 8.95 percent year-on-year at Rs 164,65,316 crore. Last fortnight, it was at 8.84 percent year-on-year.

Advances were at Rs 1,18,90,639 crore, up 8.57 percent year-on-year. Last fortnight, it was at +8.5 percent year-on-year. However, food credit was down 10.2 percent year-on-year, while non-food credit went up 8.68 percent on an annual basis.

On a fortnight basis, overall credit was up 1.49 percent. Deposits were up 1.15 percent, demand deposits grew 8.76 percent, time deposits were up 0.15 percent and non-food credit grew 1.55 percent. However, food credit fell 9.68 percent on a fortnight basis.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Banking sector in sweet spot; should see robust loan growth this year: BoM MD

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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With the COVID worries fading, the banking sector is set to register robust growth in the current fiscal on the back of stable macroeconomic conditions and growth-oriented policies of the government, said Bank of Maharashtra (BoM) Managing Director AS Rajeev. The banking sector is at an inflection point with COVID-19 related-problems yielding place to the regeneration of demand in all segments of the industry and overall optimism in the economy, Rajeev told PTI.

The banking sector seems to be in a sweet spot and expected to post good growth in the current year, provided there are no external issues like a fresh COVID-19 wave and sustained geopolitical tension, he said. As far as the retail segment is concerned, Rajeev said, the housing sector is growing very well, but there are some issues with vehicle loans due to chip shortage. Expressing optimism, he said sales are expected to gather momentum later during the year, with the chip shortage issue being addressed.

Loan growth in the agriculture sector is over 10 per cent, and a good monsoon would generate demand in the rural areas as well, he said. “The demand from the corporate sector has also started gaining, except pick up from the manufacturing sector. My sense is that with a capex push from the government in the Budget, it would stimulate demand from manufacturing,” Rajeev said.

Finance Minister Nirmala Sitharaman raised capital expenditure (capex) by 35.4 per cent for the financial year 2022-23 to Rs 7.5 lakh crore to continue the public investment-led recovery of the pandemic-battered economy. The capex for the year gone by was pegged at Rs 5.5 lakh crore. Once the Russia-Ukraine war is over and crude prices stabilise, the upward bias on interest rate should also ease, he said. It is to be noted that no public sector bank (PSBs) has faced any loss in the April-December period of 2021-22 and clocked a collective net profit of Rs 48,874 crore during this period.

The public sector banks earned a combined net profit of Rs 31,820 crore in 2020-21. However, there were collective losses for five straight years during 2015-16 to 2019-20. The highest amount of net loss was registered in 2017-18 at Rs 85,370 crore, followed by Rs 66,636 crore in 2018-19; Rs 25,941 crore in 2019-20; Rs 17,993 crore in 2015-16 and Rs 11,389 crore in 2016-17. During 2009-10 to 2014-15, the PSBs were earning profits on their books.

To improve the financial health of the PSBs, the government implemented a comprehensive 4R’s strategy — recognition of NPAs transparently, resolution and recovery of value from stressed accounts, recapitalising of PSBs, and reforms in PSBs and the wider financial ecosystem — for a responsible and clean system. Comprehensive steps were taken under the 4R’s strategy to reduce NPAs of PSBs. As part of the strategy, the government has infused Rs 3,10,997 crore to recapitalise banks during the last five financial years — from 2016-17 to 2020-21, out of which Rs 34,997 crore were sourced through budgetary allocation and Rs 2,76,000 crore through issuance of recapitalisation bonds to these banks.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Budget 2022: Here are all banking sector related announcements

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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More credit lines for small businesses, introduction of the central bank digital currency, digital banking push, and amendments to strengthen the bankruptcy law were among key focus areas for the banking sector in this year’s Union Budget.

Here are all the banking and finance related announcements made by Finance Minister Nirmala Sitharaman in today’s budget.

RBI Set to Introduce Digital Rupee in FY23

Finance Minister Nirmala Sitharaman announced that the Reserve Bank of India will use block-chain and other technology to bring out a digital currency in the coming financial year 2022-23.

“The Government proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23 for more efficient and cheaper currency management system, “ Sitharaman said.

With this, India will join the ranks of countries issuing their own Central bank Digital Currency (CBDC). CBDC is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different. CBDC is the same as currency issued by a central bank but takes a different form than paper (or polymer). It is sovereign currency in an electronic form and it would appear as liability (currency in circulation) on a central bank’s balance sheet. The underlying technology, form and use of a CBDC can be moulded for specific requirements. CBDCs should be exchangeable at par with cash.

This is not to be confused with private digital currencies like cryptos, which are not backed by governments/central banks and do not have any intrinsic value. The government has also proposed to levy 30 percent tax on digital private assets.

Extending ECLGS with focus on hospitality and related enterprises

The government has also extended the Emergency Credit Line Guarantee Scheme (ECLGS) by one year upto March 31, 2023. In addition, the guarantee cover for ECLGS will also be expanded by Rs 50,000 crore, to a total of Rs 5 lakh crore. The additional amount will be focused on hospitality and related enterpises.

The scheme provides 100 percent guarantee coverage to Banks and NBFCs to enable them to extend emergency credit facilities to Business Enterprises/MSMEs in view of COVID-19 crisis. The ECLGS is one of the key components of the Rs 20 lakh crore economic stimulus package under the ‘Atmanirbhar Bharat Abhiyan’ announced last year, and was widely expected to be both extended and expanded by the government in light of the third wave of the pandemic.

CGTMSE Scheme revamp

In a further move to help MSMEs impacted by the pandemic, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) will also be revamped with required infusion of funds, the FM said. “This will facilitate additional credit of Rs 2 lakh crore for MSEs and expand employment opportunities,” she said.

Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE) is a trust established by the Government of India, under the Ministry of Micro, Small and Medium Enterprise (MoMSME) and Small Industries Development Bank of India (SIDBI). Launched in 2000, CGTMSE offers credit guarantees to financial institutions that offer loans to MSMEs. CGTMSE provides a guarantee to lending institutions up to a certain limit for all lending done by them to the MSME sector.

Digital Banking by Post Offices: 100% of post offices to come on the core banking system

In a bid to provide a big push to the digital economy in rural India, the FM announced that all of 1.5 lakh post offices will come under the core banking system which will enable financial inclusion and access to accounts through net banking, mobile banking, ATMs, and also provide online transfer of funds between post office accounts and bank accounts. With this, ‘The government is trying to ensure benefits of digital banking reach every nook & corner of India,” Sitharaman said.

The move is significant as it will also bring more than 35 crore Post Office deposit accounts with deposits aggregating Rs 10 crore or more into the financial system.

Digital Payments: Scheduled Commercial Banks to set up 75 Digital Banking Units in 75 districts

“Digital banking, payments & fin-tech innovations have grown at a rapid pace in recent years…To mark 75 years of Independence, 75 Digital banking units will be set up in 75 districts of the country by scheduled commercial banks,” FM said. This is to ensure that benefits of digital banking reach every “nook and corner of the country

IBC Amendments

Finance Minister Nirmala Sitharaman also announced some proposed changes in the Insolvency and Bankruptcy Code (IBC) to enable seamless cross-border insolvency, as well as quicker dispute resolution.

“Necessary amendments will be made in the IBC for more efficient dispute resolution and enable cross-border insolvency resolution,” Sitharaman said.

Further, to accelerated corporate exits, the FM announced that voluntary winding up would be expedited to reduce the exit timeline from 2 years to 6 months.

What Was Not Announced

No mention was made on promises of privatisation of public sector banks announced in the last budget. While the Niti Aayog made recommendations to privatise banks like Central Bank of India, Indian Overseas Bank, the FM did not mention this in the budget, nor are the banking amendment bills required to move forward with privatization listed in this year’s budget session.

The big focus area for banking from the union budget over the years has been any announcements relating to infusion of capital into public sector banks. However, that was ruled out on the back of improved health of the financial sector, and a reduction in bad loans. The Finance Minister did not announce any further capital for the state run banks.

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3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow