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Banking sector Q2FY22 review: PSU banks record highest profits in 24 qtrs due to 23-qtr low GNPA ratio

Banking sector Q2FY22 review: PSU banks record highest profits in 24 qtrs due to 23-qtr low GNPA ratio

Banking sector Q2FY22 review: PSU banks record highest profits in 24 qtrs due to 23-qtr low GNPA ratio
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By Abhishek Kothari  Dec 1, 2021 1:59:50 PM IST (Updated)

PSU banks have seen steady rise in PAT over the last 6 quarters due to improvement in their asset quality. GNPA ratio of PSU banks has declined from as high as 15.63 percent as of FY18 to 9.09 percent as of Q2FY22.

The banking sector has reported its highest quarterly profits in the last 24 quarters. Profit momentum has continued from FY21, where in, the banking sector had reported its highest yearly profits in last 5 years. The turnaround in the profitability of the PSU banks which began in Q4FY21 continued in Q2FY22 as well.

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In Q2, PSU banks reported the highest quarterly net profit in 24 quarters. This has been achieved despite the impact from the second wave of COVID-19. In fact, none of the PSU banks reported a net loss for the 2nd consecutive quarter, one of the notable achievements in the last few years. PSU banks' balance sheet is as strong as their private counterparts' in terms of provision coverage ratio, which is at 69.5 percent for PSU banks vs 70.3 percent for private lenders.
Overall, the banking sector has seen mixed performance in terms of stressed assets where the asset quality has improved but there has been a rise in restructured book. GNPA, in absolute value, declined by 4.6 percent QoQ and in percentage declined by 51 bps QoQ. GNPA ratio of the sector is at 7.31 percent vs 7.82 percent QoQ.
Many banks like IDFC First Bank, DCB Bank, Equitas SFB continue to have low core provision coverage. Credit off-take picked up for the banking sector in Q2FY22. Best of fee income may be behind for the banking sector as it is likely to get impacted going ahead, given the fact that credit card off-take in Q2FY22 was one of the best they have seen in last many years.
PSU banks continue their Q4FY21 momentum
The outperformance in the banking sector on a sequential basis was led by PSU banks for the third quarter in a row. PSU banks reported their highest quarterly profits in the last 24 quarters at Rs 17699.4 crore, up 92.5 percent YoY and 21.5 percent QoQ. None of the PSU banks have reported net loss in Q2FY22. The massive turnaround, QoQ, in profits, was led by UCO Bank, Bank of Baroda (2nd quarter in a row), Bank of India, Union Bank, among others. The GNPA ratio of PSU banks is at 9.09 percent vs 9.71 percent QoQ.
Private banks: Leaders are walking away with market share from mid & small private banks
Private banks have underperformed PSU banks in Q2FY22 for the third quarter in a row, on profit growth and GNPA movement QoQ. Four private banks -- Bandhan bank, Ujjivan SFB, South Indian Bank & Suryoday SFB -- reported net loss. Microfinance has been impacted the most for private banks.
Loan growth remained better than the industry average for private banks at 12 percent YoY and 3.7percent QoQ. Hence, they continued to gain market share as in the last few years. Asset quality improved marginally with GNPA ratio at 4.3 percent vs 4.54 percent QoQ. In absolute value, their NNPA decline was at 6.2 percent QoQ when compared to 7.7 percent QoQ for PSU banks. Their core provision coverage ratio improved to 70.33 percent when compared to 68.93 percent reported in Q1FY22. Amongst private banks, large caps are taking away market share from mid & small private banks and also, many of the PSU banks.
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