Lenders ’operating profits are seeing a silent increase in FY22; The pace of debt growth

Although lenders may see a large jump in net profit FY22, the growth in operating profit or pre-provision profit (PPP) was slight. The bottom line was driven by a big drop in provisions, data gathered from the Capitoline show. Total progress has increased smartly over the previous year – growth was 16.7% for private lenders and 10.7% for public sector banks.

State Bank of India Chairman Dinesh Kumar Khara believes that his bank should maintain the pace of credit growth in FY23, both retail and corporate. Khara said the bank was seeing faster growth in lending than in current year deposits, adding that activity in April was better than the previous year.

Sanjay Chadda, MD and CEO of Bank of Baroda, thinks that the credit growth this year will surpass last year’s growth of 10-12%. The profits of 11 private sector banks increased by 43% in FY22 while for nine state-owned lenders, the aforesaid profit growth was 91%.

However, operating profits for the PSU universe increased by only 2.4%, while growth for individual players was 7%.

The repressed growth of the PPP resulted in a silent increase in the top line. For state-owned lenders, total revenues were virtually flat, rising only 0.5%, while for private banks, they grew 6%.

For example, net interest income at SBI increased 9% in FY22, but total income increased 5% due to rapid decline in investment income. As a result, the reported operating profit increased by 5.22%. However, a steep drop in the loan loss provision of 48% has resulted in a 55% jump in the bottom line.

Although Bank of Baroda numbers are not strictly comparable, lenders posted a healthy profit after tax because the provisions were reduced by 14%. Operating profit growth was 9%. Lenders did well in Q4FY22 as net interest income grew a good 20% year-over-year.

In the private sector pack, ICICI Bank provided a great number for the year with a 44% net profit growth behind a 14% increase in total revenue, driven by a 22% increase in net interest income. Pre-provisioning profits increased by about 8% as provisions decreased by 47%.

Analysts have observed that 17% year-on-year healthy debt growth in Q4 is good for business. Strong asset quality and stable margins, they point out, put the lender in a better position to raise the balance sheet.

Although HDFC Bank’s net profit grew well, revenue and operating profit showed a moderate increase in 4Q, prompting analysts to be cautious. While the earnings outlook is promising, the overhang of consolidation, they say, carries a heavy weight on the stock.