SCBs Report 21.3% Profit Growth In Q1 FY25 Driven By Credit Expansion: Report

Scheduled Commercial Banks (SCBs) in India have posted a robust 21.3 per cent year-on-year growth in net profit, reaching Rs 0.89 lakh crore in the first quarter of FY25, according to the latest report by CareEdge. This growth is attributed to strong credit growth and lower provisioning, with Public Sector Banks (PSBs) and Private Sector Banks (PVBs) showing significant performance improvements.

Key Findings:

Profit Growth
PSBs outperformed PVBs, with a 25.8 per cent increase in net profit to Rs 0.47 lakh crore, while PVBs registered a 16.6 per cent rise, reaching Rs 0.42 lakh crore. This impressive growth was driven by robust advances, gains from fee income, and lower provisions compared to the previous year.

Return On Assets (RoA)
The RoA for SCBs increased by 8 basis points (bps) year-on-year to 1.37 per cent in Q1FY25, despite a slight sequential decline of 2 bps due to normalisation in treasury income. PSBs saw a 7 bps improvement in RoA to 1.05 per cent, mainly supported by large PSBs which expanded by 16 bps year-on-year, driven by healthy advances growth and fee income. Meanwhile, PVBs' RoA increased by 3 bps to 1.89 per cent, though large PVBs experienced a decline, primarily due to muted treasury income.

Capital Adequacy Remains Strong
Despite a slight year-on-year decline in the Capital Adequacy Ratio (CAR) by 16 bps to 16.5 per cent, SCBs remained well-capitalised, staying above the regulatory requirement of 11.5 per cent. PSBs showed a strong capital position, with their median Common Equity Tier-1 (CET-1) ratio expanding by 95 bps to 14.1 per cent. In contrast, PVBs experienced a 17 bps decline in their CET-1 ratio, reaching 14.7 per cent.

PSBs Lead in Capital and Profit Growth:

The report highlights that PSBs have been actively raising capital, resulting in their median CAR rising by 75 bps year-on-year to 16.7 per cent, showcasing robust profitability. Meanwhile, the median CAR for PVBs saw a 15 bps decline to 16.5 per cent, primarily due to their inability to raise incremental Tier II capital.

Despite the challenges faced, including pressure on Net Interest Margins (NIMs) due to competitive constraints on interest rates, SCBs remain well-positioned with robust credit growth, strong profitability, and adequate capitalisation. The report indicates that Indian banks are planning to raise more capital to meet the growing credit demand, ensuring stability in their capital adequacy.

The findings from CareEdge’s report underscore the resilience and growth potential of India’s banking sector, as it continues to maintain strong financial health while navigating evolving market dynamics.