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Wednesday, May 22, 2024

Banks’ impressive quarter results: don’t be deceived by the numbers

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In Short:


The banking sector had a strong Q4 earnings season, led by State Bank of India with its highest-ever profit. Healthy retail loan growth was a key factor, with focus on high-yield segments. However, banks are facing challenges of rising loan-to-deposit ratio, impacting margins. Strong digital capabilities are becoming crucial for banks. Analysts predict a temporary challenge with deposit growth, but long-term outlook remains strong due to solid economic fundamentals.

The Banking Sector Shines in Q4 Earnings Season

When it comes to the latest headlines, the banking sector has truly stolen the show during the March quarter earnings season.

State Bank of India (SBI) Leads the Pack

In a remarkable feat, the country’s largest lender, State Bank of India (SBI), recorded a net profit of ₹20,698 crore in Q4. Not only is this SBI’s highest-ever figure, but it also stands as the largest quarterly profit achieved by any Indian bank. Surpassing even India’s most valuable company, Reliance Industries, which reported a net profit of ₹18,951 crore.

Another standout performer was Punjab National Bank, a state-run lender, which saw its net profit surge nearly three-fold to ₹3,010 crore. This remarkable growth was driven by an increase in interest income and a decrease in non-performing loans.

Strong Growth in Retail Sector

The success of banks in the last quarter can largely be attributed to steady loan growth, ranging between 15-25%. Particularly, the retail segment has been a major driver of this growth, with the corporate sector showing stagnant or declining results in some cases.

HDFC Bank
HDFC Bank saw a 3.5% sequential uptick in retail loans. – Reuters

HDFC Bank, the top private sector lender, reported a 3.5% sequential increase in retail loans. While the corporate and wholesale sectors experienced a 2.2% decline. Similarly, ICICI Bank showed robust growth in retail loans, with mortgages up 14.9%, personal loans up 32.5%, and credit cards up 35.6% year-on-year.

The focus remains on high-yield segments like rural loans, personal loans, small business banking, and credit cards, as highlighted by analysts at BNP Paribas.

Improving Asset Quality and Digital Focus

Notably, there has been a positive trend in asset quality, with non-performing loans and slippages stabilizing for most lenders. Additionally, banks are intensifying their digital capabilities to stay competitive in the tech-driven environment.

Sashidhar Jagdishan, HDFC Bank’s managing director and chief executive officer
Sashidhar Jagdishan, HDFC Bank’s managing director and chief executive officer

Sashidhar Jagdishan, Managing Director and CEO of HDFC Bank emphasized the importance of enhancing customer engagements and focusing on the sustainability of the deposits franchise for long-term profitability.

Challenges and Prospects Ahead

Despite the recent success, banks face challenges in balancing credit growth with deposit mobilization. The rising cost of funds and regulatory constraints will influence the sector’s performance in the coming year.

While the sector’s growth may moderate due to these challenges, analysts remain optimistic about the economy’s resilience and expect banks to adapt and thrive in the long run.


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