Core earnings banks remain under pressure in second quarter

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Over two dozen listed banks have registered a record quarterly net profits of Rs 39,643 crore in second quarter, up 48% YoY from Rs 26,844 crore a year ago, according to a report

The profit of 28 listed banks before provisioning, or core earnings, was, however down 1.5% YoY in the second quarter. The same had recorded 10.1% YoY growth in the first quarter of this financial year, said a report in the Business Standard.

Helped by lower interest costs and provisioning, banks have registered all-time high quarterly net profits in July-September period. Their combined interest expenses were down 6.2% in September quarter. Provisioning cost for bad loans came down 34% to about Rs 34,000 crore, the lowest in at least five years, said the report.

Credit growth needs to pick up pace

On the other hand, gross interest income fell 1% YoY to ₹ 2.84 trillion. Gross revenues were up 2% YoY .

The report quotes Dhananjay Sinha, managing director and chief strategist, JM Financial institutional equity as saying that earnings growth was largely on suppression of interest on deposits and write-back of past provisioning for bad loans. Slower overall credit growth and downward pressure on yields or interest on loans put pressure on core earnings, he added.

Analysts said it may be tough to maintain the current momentum in earnings in quarters unless credit growth picks up pace or the interest on loans rises.

Banks’ credit growth hit a new low for the second year in a row in FY21 at 5.56%– the lowest in 59 years, SBI Research had said.

Credit offtake in FY21 at Rs 109.51 lakh crore was lower than FY20’s when it had clocked a growth of 6.14% which was the lowest in as many as 58 years. It was way back in FY1962 when credit growth was lower than this at 5.38%.

According to the SBI Research report, FY08 had the best credit and deposit growth on record — 22.4% growth in deposits and 22.3% jump in credit offtake.