PSU banks put up a flattering show in Q4FY23

Widening of net interest margins (NIMs) and a surge in net interest income (NII) is not just true of private banks but even of PSU banks. Of course, the big daddy of PSU banking, SBI is yet to announce the results for the March 2023 quarter. However, based on early trends, the trend has been one of consistent growth in the net interest income (NII) and expansion of the net interest margins (NIMs). Today, even most of the PSU banks have shifted, by default, to the MCLR formula that moves in tandem with the repo rates. With the RBI raising repo rates by a full 250 basis points, the impact on the lending rates was inevitable.

The good news is that this has benefited not only the private banks but even the PSU banks that have seen a sharp growth in profitability on yoy basis due to this lag effect. That means; the deposit rates are not growing at the same pace as the lending rates and that lag effect is contributing to profit surge in banks. The estimate is that this impact, which started in the December 2022 quarter has continued in Q4FY23 and is expected to continue into Q1FY24 also. Let us now look at 3 PSU banks that have declared results till date.

Union Bank PAT up 81% at Rs2,812cr on 22% growth in NII

For the fourth quarter of FY23 ended March 20234, Union Bank of India reported 43.5% growth in total revenues at Rs27,764 crore with 12.7% sequential growth. In terms of key growth drivers, Union Bank saw growth in revenues from retail banking and treasury and sharp growth in revenues from corporate banking. However, operating profits from treasury and retail fell sharply, while corporate banking turned around from losses to profit. But the big story was the 21.9% growth in the net interest income (NII) for Q4FY23 at Rs8,251 crore. This also resulted in the net interest margins (NIM expanding by 23 basis points from 2.75% to 2.98%. For the quarter, the non-interest income grew by 62.5% yoy to Rs5,269 crore. In terms of business, the total advances grew over 12% while deposits grew over 8% yoy with CASA ratio at 35.62%. Check out the numbers below of the company.

The low credit cost combined with a spike in NII led to operating profits climbing by 23.7% while net profits were up 81% yoy. The quarter also saw lower provisions. The credit cost fell 23 bps from 2.00% to 1.77% on a yoy basis and PCR at 83.61% to 90.34%. However, gross NPAs at 7.53% still remains high in absolute terms, although it is trending lower gradually.

Bank of India doubles PAT to Rs1,412cr as NIM expands 59 bps to 3.15%

Bank of India grew top line revenues by 44.7% to Rs16,716cr for Q4FY23 and to 17.57% in sequential terms for. For the quarter, the company saw growth in revenues from retail bank and treasury and sharp growth in revenues from corporate banking. Net interest income (NII) for Q4FY23 was up 37.8% at Rs5,493 crore while the net interest margins (NIM) expanded 59 basis points from 2.56% to 3.15%. There was a fall in the gross NPAs and the net NPAs on a yoy basis.

The expansion in the NIMs and the NII reflected in the growth in operating profits and the net profits for the quarter. For Q4FY23, the operating profits were up 69.2% yoy while the net profits were up 105% yoy and this can almost entirely be attributed to sharp expansion in NIMs. The cost to income fells sharply to 51.5%, while the provision coverage ratio (PCR) stood at a relatively healthy 89.7%. Despite rising rates in the economy, Bank of India actually saw its credit fall sharply from 1.10% to just 0.45%.

Canara Bank sees net interest income (NII) grow 23% yoy

One of India’s top PSU banks post-merger, Canara Bank reported 29.6% growth in total revenues for the March 2023 quarter on consolidated basis at Rs31,774cr. Canara Bank showed higher growth in revenues from retail banking and corporate banking while treasury income was flat yoy. In terms of EBITDA performance, the corporate banking business narrowed its net losses while retail profits were higher and treasury profits halved yoy. Net interest income (NII) for Q4FY23 grew 23.01% while net interest margins (NIM) were up 14 bps to 3.07%. Canara Bank saw gold loan portfolio grow 33.8% to Rs123,185 crore, and business grow 11.7%to Rs20,41,764 crore. The provision coverage ratio stood at 87.31%.

The net impact of all these financial improvements was that the ROE improved 667 bps to 19.49% while gross NPAs and net NPAs fell yoy. Overall retail credit was up by 10.9% yoy while home loan business grew 14.3% yoy. Canara Bank declared a dividend of Rs12 per share for the full year.