12 PSBs cross ₹1 lakh crore profit mark in 2022-23 aided by lower credit cost, strong recoveries

An analysis of the results announced by these lenders showed that the top public sector banks went all out when it came to year-over-year net profit growth in the quarter ending in March 2023.

Led by State Bank of India, which saw its fourth-quarter profit rise 83% to INR 16,695 crore, large PSBs such as Punjab National Bank, Bank of Baroda and Canara Bank all reported significant year-on-year increases. Growth rates in fourth quarter earnings.

For the 2022-23 financial year, the SBI posted a profit of Rs. 50,232 crore, up from Rs. 31,675 crore in 2021-22. This is the highest ever quarterly and annual profit for the SBI.

While PNB’s profit in the fourth quarter grew by 477 per cent to Rs. 1,159 crore (201 crores), Bank of Baroda’s net profit in the fourth quarter increased by 168 per cent to Rs. 4,775 crore (Rs. 1,779 crores).

For the fourth quarter ended 31st March 2023, Canara Bank reported a net profit of Rs. 3,175 crore, up 91 per cent from a net profit of Rs. 1,666 crore in the same financial quarter last year.

The data showed that the gross earnings of 12 PSB crossed the ₹1 lakh crore mark (₹1.05 lakh crore mark, to be exact in 2022-23).

This growth occurred after these 12 banks recorded a net loss of Rs.85,390 crore in 2017-18.

These 12 PSBs have seen a 57 per cent increase in gross profits as compared to the Rs.66,539.98 crore achieved in 2021-22.

PNB recorded a decline of 27 per cent in annual net profit from ₹3,457 crore in 2021-22 to ₹2,507 crore in the year ended March 2023.

The PSBs reporting annual profit of more than Rs. 10,000 crore in 2022-23 are Canara Bank (Rs. 10,604 crore) and Bank of Baroda (Rs. 14,110 crore).

what are the reasons

The main factors behind this strong performance of all PSBs, including the large ones, are the lower cost of credit to banks and focused efforts to improve recoveries. The cost of credit is different from the “cost of funds”. Credit cost is the cost incurred by the lender for providing credit to the borrower.

“The main reason not only for our bank (PNB) but also for all public sector banks is that credit costs have been significantly reduced. Gross NPA, net NPA, aging provision has also been reduced. This is why profitability has improved across the board,” Atul said. Kumar Goel, Managing Director and CEO, PNB, Business line.

He highlighted that credit costs are going down quarter by quarter for PNB. In the case of PNB, the cost of credit was 2.05 percent in 2022-23, and in the current fiscal year it is estimated to be between 1.5 and 1.75 percent, Joel said.

Joel also noted that PNB has significantly improved its underwriting standards over the past two years. Out of the total disbursement level of Rs.5.18 crore in a year and a half, NPA was a paltry Rs.178 crore.

“A lot of initiatives have been taken by the Bank (PNB) in order to Improving asset quality. This is the reason for the increase in recovery and decrease in addition. Last year was a good year for PNB. Joel added that this year will be better for us.

“Certainly most banks have benefited from expanding their credit outreach in the past year, as well as managing their costs — especially managing interest distribution and employee productivity,” said Srinath Sridharan, a policy researcher.

These have contributed to the increase in profitability, he said, adding that the market will be keen to watch if they can maintain their growth momentum and profitability in the next few quarters as well.

Krishnan ASV, Principal Analyst – BFSI, HDFC Securities, said, “FY23 has emerged as a huge year for PSB with return on assets increasing at an average of 30-40 basis points during the year (Q1 through Q4). The lion’s share of the ROA inversion is driven by two parameters: net interest margins (accounting for 80-90% of the contraction) and credit costs (<10% of the ROA contraction).Of these two key variables, we believe that the gain from net interest margin ( NIM) will partially reverse during FY24 as deposit repricing continues to catch up with the lag.Also, despite the benign credit environment currently prevailing, PSB may see higher credit costs as it builds up its balance sheet for the impending ECL - in select cases, we expect costs to PSB's credit may not continue at such abnormally low levels."