Net profit of listed commercial banks seen growing 44% in Q1 FY24

Benefiting from higher credit off-take and loan repricing, listed commercial banks are expected to post 43.9 per cent year-on-year (YoY) growth in their net profit in the quarter ended June 30 (Q1FY24), analysts have said.

Controlled credit costs due to a healthy asset quality profile and a steady treasury book will also support a strong bottom line for the lenders in the first quarter.

However, net profit may shrink sequentially, according to analysts’ estimates for 13 banks sourced from Bloomberg data.

The estimates showed that the banks’ net interest income (NII), revenues from interest minus interest expenses, may grow 28.8 per cent YoY in Q1FY24.

NII may, however, contract 4.9 per cent over the March 2023 quarter.

Domestic brokerage Motilal Oswal in its preview of bank results for Q1 said the earnings momentum might remain robust, especially for public sector banks, but margins could show a downside bias on rising funding costs.

While deposits costs have gone up, still-rising yields on advances are providing net gains, helping banks post healthy growth in NII. Karthik Srinivasan, group head financial sector ratings, ICRA, said large amounts had come to banks as deposits after the withdrawal of Rs 2,000 notes from circulation in May, adding to interest costs in the first quarter.

According to the Reserve Bank of India data, the weighted average lending rate (WALR) on outstanding rupee loans of scheduled commercial banks increased to 9.78 per cent in May 2023.

The median marginal cost of fund-based lending rate (MCLR) rose to 8.65 per cent in June 2023.

Most corporate loans are priced by benchmarking them to MCLR.

Credit off-take has remained robust through the first quarter, even though the April-June period is generally seen as a relatively lean season for loan demand, especially from business and corporate.

The banking system posted a 15.4 per cent YoY growth in credit till June 16, 2023, according to the RBI data.

Bankers said asset quality improvement trend had continued in Q1FY24 as well. Motilal Oswal Securities said slippages were expected to remain under control, which, along with recoveries, should aid the ongoing improvement in asset quality.

Restructured and ECLGS books are likely to moderate gradually, while low special mention accounts (SMA) book, or loans where payments dues are up to 90 days, will keep credit costs in check.

According to the RBI’s Financial Stability report, SCBs’ gross non-performing assets ratio continued its downtrend and fell to a 10-year low of 3.9 per cent in March 2023.

The net non-performing assets ratio declined to 1.0 per cent.