Private banks post 31.7% YoY growth in Q3, net profit rises to Rs 35,166 cr

Healthy interest margins, credit offtake boost bottomline; provisions show subdued rise on better asset quality

Reflecting the benefit of repricing of loans and robust credit offtake, private sector banks posted 31.7 per cent growth year-on-year (YoY) in net profit to Rs 35,166 crore in the third quarter ended December 2022 (Q1FY23). Sequentially, net profit rose by 12.6 per cent over Rs 31,218 crore in the second quarter ended September 2022 (Q2FY23).

The net interest income (NII) rose by 26.6 per cent YoY and sequentially 8.9 per cent over the second quarter ended September 2022, according to data for 15 listed banks compiled by BS Research Group.

Banks gained from higher increases in lending rates compared to rise in deposit rates. Reserve Bank of India (RBI)’s latest data showed that the weighted average lending rate (WALR) on outstanding rupee loans of private banks rose by 67 basis points from 9.77 per cent in December 2021 to 10.44 per cent in November 2022. The weighted average domestic term deposit rate (WADTDR) on outstanding rupee term deposits went up by 54 bps from 5.18 per cent in December 2021 to 5.72 per cent in November 2022.

While the core income stream showed a robust trend, the contribution from non-interest income was subdued (11.3 per cent YoY) as investment portfolio was impacted by 225 basis points hike in the policy repo rates since May 2022.  While the loan portfolio of banks under review expanded by 17.8 per cent YoY on robust festive season demand, their deposits grew by 14.1 per cent YoY.

On the trend of interest income and rate trajectory, Anil Gupta, vice-president and co-group head Icra said the policy repo rate may go up in February 2023. The balance sheets of banks in Q3 got partial benefit (one month) of 35 basis point repo rate hike in December. They are expected to have full benefit of that hike in the fourth quarter (Q4FY23).

"The liquidity is getting deployed at a higher rate. This provides upside on the income. Deposits will come up for major renewal (repricing) in early next financial year (FY24). So the fourth quarter should also be stronger in terms of margins.  Banks have hiked in deposit rates but its effects would be only in subsequent years and margins should compress in every quarter of next financial year (FY24)", Gupta added.

The provisions and contingencies including that for bad loans grew moderately (6.9 per cent YoY and 13.9 per cent QoQ).

Nitin Aggarwal, Research analyst – banking, Motilal Oswal Securities said credit costs of banks have remained in control and are expected to stay that way for next one-two quarters.

Bankers said banks have been reporting fall in non-performing assets in absolute terms and in percentage terms in 2022. This has meant lesser burden for setting aside money as provisions for stressed assets.  

Gross bad loans fell to Rs 1.4 trillion at the end of December 2022 from Rs 1.88 trillion a year ago. Sequentially also from Rs 1.69 trillion in September 2022.