Lender Operating Profits See Moderate Growth in FY22; loan growth momentum expected to continue

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While lenders’ net profits may have seen a strong increase in FY22, growth in operating profits or earnings before provisioning (PPP) was modest. Net income was driven by a sharp decline in provisions, according to data compiled by Capitaline show. Total advances increased significantly from the previous year – the increase was 16.7% for private lenders and 10.7% for public sector banks.

State Bank of India Chairman Dinesh Kumar Khara believes his bank should be able to sustain the momentum of loan growth in FY23 on both the personal and corporate front. Khara said the bank was seeing faster growth in loans than deposits in the current year, adding that activity in April was better compared to the year-ago period.

Sanjay Chadha, MD and CEO, Bank of Baroda, estimates that loan growth in the current year will exceed last year’s growth at 10-12%. Earnings for a set of 11 private sector banks rose 43% in FY22, while for a set of nine public lenders, reported earnings growth was 91%.

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

The moderate increase in PPP is the result of moderate revenue growth. For public lenders, total revenues remained almost stable, increasing only 0.5%, while for private sector banks they increased by 6%.

SBI’s net interest income, for example, rose 9% in FY22, but total income rose 5% because investment income fell sharply. As a result, reported operating profits increased by 5.22%. However, the sharp decline in loan loss provisions of 48% led to a 55% increase in net income.

Although Bank of Baroda’s figures are not strictly comparable, the lender posted a strong after-tax profit as provisions fell 14%. The increase in operating profits was 9%. The lender performed well in Q4FY22, with net interest income up 20% year-over-year.

In the private sector pack, ICICI Bank posted a slew of exceptional figures for the year with a 44% increase in net profit on the back of a 14% increase in total income, driven by a 22% increase net interest income. Pre-provision earnings rose about 8% as provisions fell 47%.

Analysts note that healthy loan growth of 17% year-over-year in the fourth quarter bodes well for businesses in the current year. Good asset quality and stable margins, they point out, put the lender in a good position to grow the balance sheet.

Although HDFC Bank’s net profit grew well, revenue and operating profit showed modest growth in the fourth quarter, prompting analysts to be cautious. Although the earnings outlook is bright, the merger overhang, they said, weighs heavily on the stock.

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