PSU Banks’ Bad Loan Provisioning Falls In Q2 Amidst Improving Asset Quality

Public sector undertaking (PSU) banks have gained significant attention from investors over the past few quarters following their improving financial condition and better asset quality. The Nifty PSU Banks index has gained over 38 per cent in the past 12 months compared with around 6 per cent gain of each of the Nifty 50 and the ET 100 indices.

The PSU banks continued to show a sustained improvement in the September quarter. At the aggregate level, the provisioning for bad loans or loan loss provisioning for the 12 listed PSU banks fell to Rs 16,552 crore compared with Rs 16,875 crore in the previous quarter and Rs 18,138 crore in the year-ago quarter.

Excluding the June 2023 quarter, the loan loss provisioning for the 12 PSU banks fell in each of the quarters since June 2022. The reading for the latest September quarter was lower than Rs 24,324 crore in the March 2022 quarter.

Of the total sample of the PSU banks, the majority of the banks reported a year-on-year(YoY) drop in nonperforming asset (NPA) provisioning for the September quarter. State Bank of India, the country's largest lender, showed a 9.7 per cent YoY decline in the loan loss provisioning at Rs 1,814.9 crore.

For Punjab National Bank, the second largest PSU bank based on domestic advances, NPA provisioning fell by 15.1 per cent to Rs 3,018.6 crore. Indian Bank reported the highest drop of 54 per cent in provisioning at Rs 917 crore in the September quarter.

On the other hand, NPA provisioning of Central Bank of India increased by 80.2 per cent YoY to Rs 1,928.6 crore while that of India Overseas Bank rose by 78.7 per cent to Rs 1,120.5 crore.

The sample banks showed higher interest income at the aggregate level given the improving credit offtake. The sample's net interest income increased by 13.5 per cent to Rs 1 lakh crore in the September quarter.

The pre-provision operating profit grew by 5.9 per cent to Rs 62,917 crore. The net profit jumped by 31 per cent to Rs 33,643 crore. On a sequential basis, net profit has fallen from Rs 34,417.9 crore in the June quarter. It was the second consecutive sequential drop.

Net profit of banks has been under pressure given the shrinking net interest margin as banks have raised deposit rates to attract customers amid firm interest rates in the economy. The sample's net profit peaked at Rs 34,482.4 crore in the March 2023 quarter from a low of over Rs 17,100 crore in the December 2021 quarter.