In a sweet spot?

State Bank of India has earned a net profit of Rs 13,265 crore on a standalone basis in the September quarter of the current financial year, which is 74 per cent higher than the same period of last year. Bank of Baroda's net profit increased by 59 per cent to Rs 3,313 crore in the second quarter of the current financial year, as against Rs 2,088 crore in the same quarter of last year. The net profit of Punjab and Sind Bank (PSB) increased by 27 per cent to Rs 278 crore in the second quarter of the current financial year, as against Rs 218 crore in the same period of last year. The total income of PSBs increased to Rs 2,120.17 crore in the second quarter, as against Rs 1,974.78 crore in the same period of last year. In the September quarter, UCO Bank's net profit increased by 146 per cent over the previous year, while Bank of Maharashtra's profit increased by 103 per cent. During the same period, the net profit of Canara Bank increased by 90 per cent.

Among public sector banks, except Punjab National Bank and Bank of India, the profits of all other PSBs have been higher in the September quarter of FY 2022-23. The 12 public sector banks earned a net profit of Rs 25,685 crore in the second quarter of the current financial year and Rs 40,991 crore in the first half of the current financial year, which is 50 per cent and 31.6 per cent higher, respectively, than the previous year.

The performance of private banks has also been excellent during this period. Only two of the 18 private-listed banks have seen a decline in net profit during the period. Their net profit increased by 64 per cent on an annual basis to Rs 32,150 crore as compared to the previous year. In the September quarter of the current financial year, HDFC Bank's net profit was Rs 10,606 crore, ICICI Bank's net profit was Rs 7,558 crore, Kotak Mahindra Bank's net profit was Rs 2,581 crore and Axis Bank's net profit was Rs 5,330 crore.

There has been a 22 per cent increase in the net interest income of banks. The net interest income of public sector banks has increased by 20 per cent, while the net interest income of private sector banks has increased by 24.5 per cent. The reason for the increase in the net interest income of the banks is the increase in the offtake of lending, but the ratio of lending to bank deposits is not increasing. Due to the huge difference in lending and deposit rates, the possibility of a liquidity crisis has increased for the banks. The scope of the profits of companies and banks being affected has also increased.

The NPAs of listed banks came down to Rs 6.62 lakh crore in the September quarter of FY 2022-23, of which public sector banks account for Rs 4.87 lakh crore. Their net NPA is Rs 1.68 lakh crore, in which the share of public sector banks is Rs 1.29 lakh crore.

The gross NPA of all scheduled commercial banks stood at Rs 10.4 lakh crore in March 2018, while the net NPA stood at Rs 5.2 lakh crore. The gross NPA of public sector banks during this period was Rs 8.96 lakh crore, while the net NPA was Rs 4.54 lakh crore. The gross NPA of private sector banks was Rs 1.29 lakh crore and the net NPA was Rs 64,000 crore. Among private banks, IDBI Bank is at the top with a 16.5 per cent NPA. Yes Bank is in second place with 12.89 per cent NPA, while Bandhan Bank is in third place with 7.19 per cent NPA. Among public sector banks, Punjab National Bank topped the list with a 10.48 per cent gross NPA, followed by the Central Bank of India with a 9.67 per cent gross NPA and Punjab and Sind Bank with a 9.67 per cent gross NPA. The net NPA of the State Bank of India and Bank of Maharashtra is less than 1 per cent.

However, recovery is not the reason for the decline in NPAs. By March 2022, the banking sector had reduced gross NPAs by a total of Rs 7,29,388 crore but banks have recovered only Rs 1,32,036 crore from the written-off loans in the last five years. Thus, a major reason for the reduction in NPAs is the relaxation of NPA rules by the government and the central bank during the pandemic and the dilution of the policy norms and provisioning of financial support to businessmen.

Even though there has been a significant increase in the profits of public and private sector banks in the second quarter of the financial year 2022-23, an important reason for the increase in the profits of banks is the significant reduction in the number of provisions being made for NPAs and contingencies. Overall, banks have reduced the provisioning amount by 13 per cent in the second quarter of FY 2022-23. Private banks have cut 45 per cent in the case, while public sector banks have reduced by 18 per cent. During this period, there has been a 12 per cent increase in the expenses of the banks, while a decline of two per cent has been registered in the fee-based income.

After the pandemic, due to a sharp rise in lending and an increase in the repo rate, banks had to insist on increasing deposits, but in the last 12 months, out of 12 public sector banks, only four banks registered double-digit growth in deposits, while there was a significant increase in the lending of other banks except one. Similar has been the situation in private banks. Of all the listed private banks, only two registered a higher growth in deposits than loans. However, banks are also increasing the interest rate on deposits. They are trying to raise capital through bonds at higher interest rates. State Bank of India has recently raised Rs 10,000 crore through the first issue of 10-year infrastructure bonds.

Undoubtedly, the profits of the banks have improved in the first and second quarter of the financial year 2022-23 and it is likely to increase in the new year as well. However, in the current scenario, it is necessary that the banks clean up their loopholes, focus on reducing NPAs, try to raise deposits at a cheaper rate and cut expenses so that their balance sheets become stronger.

Views expressed are personal