Finance & Economy | News & Insights

SCBs Remain Adequately Capitalised, PSBs See Robust Bottomline Growth

Published: July 1, 2023
Author: TEXTILE VALUE CHAIN

Synopsis

• Scheduled Commercial Banks’ (SCBs) net profit grew at 52.1% y-o-y for Q4FY23 due to robust growth in Pre-Provisioning Operating Profit (PPOP) and supported by lower requirement of provisions.

• Return on Assets (RoA, annualised) of SCBs improved by 36 bps y-o-y to 1.36% in Q4FY23 and it has been generally on an uptrend since Q1FY21.

• All SCBs have maintained their Capital Adequacy Ratio (CAR) greater than the minimum required level for Q4FY23. The median CAR of SCBs witnessed a rise of 40 bps y-o-y in Q4FY23.

Net Profit 

The net profit of SCBs grew by 52.1% y-o-y to Rs.0.73 lakh crore in Q4FY23.

o PSBs’ net profit rose by 91.0% to Rs.0.34 lakh crore in Q4FY23 driven by robust growth in PPOP, also supported by lower requirements for provisions. The net profit of PSBs contributed ~47% of the total SCBs profit for the quarter, up from 38% in Q4FY22.

o PVBs’ net profit rose by 29.3% to Rs.0.39 lakh crore in Q4FY23 on account of robust growth in PPOP.

o Growth in NII and non-interest income helped SCBs’ PPOP to grow by 28.2% y-o-y to Rs.1.30 lakh crore in Q4Y23. PVBs PPOP also grew at a robust 28.1% y-o-y. Meanwhile, the provision of SCBs declined by 12.6% to Rs.0.32 lakh crore due to lower requirements from PSBs. While PVBs’ provisions increased by 8.5% y-o-y to 0.1 lakh crore in the quarter.

RoA of SCBs improved by 36 bps y-o-y to 1.36% in Q4FY23. It has been generally on an uptrend since Q1FY21 (+0.47%). PSBs’ RoA improved by 42 bps to 1.0% in Q4FY23 over a year ago, while PVBs reached 1.97% in Q4FY23 from 1.75% in Q4FY22.

Capital Adequacy Improves.

• The median CAR of SCBs rose to 16.9% in Q4FY23 from 16.5% in Q4FY22, driven by PSBs, indicating a stable position.

o PSBs median CAR stood at 16.3% for Q4FY23, rising by 100 bps on account of robust profitability and bond issuance. Whereas PVBs median CAR dropped by 80 bps to 17.6%.

• The Median Common Equity Tier 1 (CET-1) ratio of SCBs too witnessed a healthy expansion to 13.6% in Q4FY23
from 12.6% in Q4FY22 mainly driven by PSBs.

o PSBs’ median CET-1 ratio improved by 90 bps y-o-y to 12.5% in Q4FY23. PVBs CET-1 ratio reduced by 80 bps y-o-y to 14.8% in Q4FY23 due to robust growth in advances as compared with capital base.

The banks issued bonds in FY23 to improve their capital base for managing strong credit growth. The planned introduction of “Expected Credit Loss” (ECL) norms by RBI would also likely require additional capital, which the banks would factor into their capital raising plans. For FY24, several large banks have already announced capital-raising plans.

Conclusion
Currently, banks are in a better position after navigating the Covid period given the healthy credit growth in FY22 and FY23, continuous improvement in asset quality over the last several years, and lower requirements of the provisions due to substantial buffer for provisioning, lower incremental slippages and reduction in restructured assets. The banks have also reported robust growth in net profit for FY23 driven by PPOP growth and lower requirement for the provisions. Return ratios have been generally trending upwards since Q1FY21 and have improved in the quarter. PSBs’ RoA improved significantly from 0.21% in Q1FY21 to 1.0% in Q4FY23. SCBs are expected to remain adequately capitalised in the near term due to sustained profitability and capital raising.

Related Posts