Bank Profits to Increase Irrespective of Provisions

As per analysts, listed banks might record more than a 20% increase in Q2 profits, the second quarter between July and September 2021-22 (FY22) concerning improvement in collections and credit offtake. This rise could be seen amidst provisions to the bill and pressure of slippages.

According to analyst assessments, out of 19 lenders – the profit of 14 private sector banks and five public sector banks would increase by 21.7%, i.e. to Rs 32,075 crore in Q2 year-on-year (YoY). As per the Reserve Bank of India (RBI) data, the banking system’s credit increased 6.7% YoY towards the second half of September, at 5.6% in March.

Interest income might witness a limited increase because of a reduction in the lending rates to mop-up business. Banks continue to benefit after a dip in the cost of funds due to a decrease in deposit rates.

Analysts have also mentioned that net interest margins are anticipated to stay consistent with a downward pressure since banks have been cutting down on deposit rates amidst chasing savings/current account deposits and good liquidity.

Since there was no moratorium during the COVID-19 second wave, banks might witness an increase in the non-performing and restructured assets. According to the one-time restructuring (OTR) 2.0, a lender could recast their loan up to September 2022. The increase in stressed assets may not drive bills concerning provisions since lenders have sustained a higher provision coverage ratio in the last few quarters. Restructuring under OTR 2.0 will persist in Q2FY22 within the anticipated or guided range.

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For any clarifications/feedback on the topic, please contact the writer at bhavana.pn@cleartax.in