Private banks report 31.7 percent yoy growth in net profits in Q3FY23

In a report on aggregate quarterly earnings of the private banking sector, a set of 15 listed private banks appear to have gained from loan repricing and strong credit offtake. The outcome; a 31.7% spike in net profits overall in Q3FY23 to an aggregate private banking industry net profits of Rs35,166 crore. In addition, the profit also grew 12.6% on sequential basis. What was the trigger?

Net Interest Income (NII) saw 26.6% yoy increase while sequential growth in profits stood at 8.9%. The RBI Weighted Average Lending Rate (WALR) had risen over the last one year from 9.77% to 10.44% on the back of a rise in interest rates in the economy. However, the Weighted Average Domestic Term Deposit Rate (WADTDR) only grew to 5.72% yoy. This lag in impact on deposit rates was the key driver of profits in the December 2022 quarter.

On the other hand, non-interest income contributions were largely subdued to 11.3% yoy, owing to the 225 basis points hiking of repo rates since May 2022. These rates were hiked by the RBI, as a move to quell inflation even at the cost of economic growth. Repo rates are anticipated to rise further by 50 bps in April after staying put in February. However, from here on, the incremental benefits of higher rates on bank bottom lines would be limited. 

Credit costs of banks have been under check, and will stay there for next few quarters. Non-Performing Assets (NPAs) have been falling on absolute and relative basis. This has also boosted profits by necessitating lower provisioning liability for the banks.