Finance & Economy | News & Insights

Healthy Earnings & Asset Quality in Q2FY24, Margin Compression Continues

Published: December 30, 2023
Author: TEXTILE VALUE CHAIN

Synopsis:

  • Scheduled Commercial Banks (SCBs) reported a robust rise in advances at 20.0% y-o-y in Q2FY24 driven by the merger, personal loans and NBFCs. Meanwhile, SCBs witnessed a 13.5% y-o-y deposit growth for the quarter.
  • Net Interest Income (NII) of SCBs grew by 17.0% year-on-year (y-o-y) to Rs. 1.89 lakh crore in Q2FY24 due to healthy loan growth and a higher yield on advances over the year-ago period.
  • The Net Interest Margin (NIM) SCBs contracted by 14 basis points (bps) sequentially to 3.13% driven by a drop in the NIM of large PVBs.
  • SCBs Pre-Provisioning Operating Profit (PPOP) grew by 13.2% year-on-year (y-o-y) to Rs 1.28 lakh crore due to higher growth in Net Interest Income (NII), growth in treasury income, a low base and comparatively lower growth in operating expenses (opex). Meanwhile, on a sequential basis, PPOP margin declined marginally.
  • Gross Non-Performing Assets (GNPAs) of Scheduled Commercial Banks (SCBs) reduced by 24.3% y-o-y to Rs. 5.10 lakh crore as of September 30, 2023, due to lower slippages, steady recoveries & upgrades, and write-offs. The GNPA ratio of SCBs reduced to 3.3% as of September 30, 2023, from 5.2% over a year ago. Net Non-Performing Assets (NNPAs) of SCBs reduced by 32.6% y-o-y to Rs. 1.16 lakh crore as of September 30, 2023. The NNPA ratio of SCBs reduced to 0.8% from 1.4% in Q2FY23 which is an all-time low.
  • Return on Assets (RoA, annualised) of SCBs improved by 17 bps y-o-y to 1.28% in Q2FY24. However, banks faced marginal pressure and declined by 1 bps on a sequential basis due to higher growth in advances, rising cost of deposits, reduction in low-cost CASA deposits and seasonality impact.

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