Operating profits of lenders see muted growth in FY22; loan growth momentum likely to be maintained

While net profits for lenders may have seen a big jump in FY22, the growth in operating profits or pre-provisioning profits (PPP) was modest. The bottom line was driven up by a big drop in provisions, data collated from Capitaline show. Total advances went up smartly over the previous year – the increase was 16.7% for private lenders and 10.7% for public sector banks.

State Bank of India chairman Dinesh Kumar Khara believes his bank should be able to maintain the loan growth momentum in FY23, both on the retail and corporate fronts. Khara said the bank is seeing a faster growth in loans than in deposits in the current year, adding that activity in April was better compared with the year-ago period.

Sanjay Chadha, MD & CEO, Bank of Baroda, feels the loan growth in the current year will outpace the growth last year at 10-12%. Profits for a set of 11 private sector banks grew 43% in FY22 while for a clutch of nine state-owned lenders, the reported profit growth was a whopping 91%.

However, the operating profits for the PSU universe increased by just 2.4%, while for private players the increase was 7%.

The subdued increase in PPP resulted from a muted growth in the top line. For state-owned lenders, total revenues stayed virtually flat, growing at just 0.5%, while for private sector banks, they increased by 6%.

The net interest income at SBI, for instance, increased by 9% in FY22, but the total income went up by 5% because investment income fell sharply. Consequently, the reported operating profits increased by 5.22%. However, the steep drop in loan loss provisions of 48% resulted in a 55% jump in the bottom line.

While the numbers for Bank of Baroda are not strictly comparable, the lender posted a healthy profit after tax as provisions fell 14%. The increase in the operating profits was 9%. The lender fared well in Q4FY22 as the net interest income grew a good 20% year-on-year.

In the private sector pack, ICICI Bank delivered a stellar set of numbers for the year with a 44% rise in net profit on the back of a 14% increase in total income, driven up by a 22% rise in net interest income. Pre-provisioning profits were up around 8% as provisions dipped 47%.

Analysts observe that the healthy loan growth of 17% y-o-y in Q4 augurs well for business in the current year. The strong asset quality and stable margins, they point out, put the lender in a good position to grow the balance sheet.

Although HDFC Bank’s net profits grew well, revenues and operating profits showed a modest growth in Q4, prompting analysts to be cautious. Although the earnings outlook is promising, the overhang of the merger, they said, is weighing heavily on the stock.

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