The NII in the September quarter rose 15 per cent to Rs 52,101 crore in Q2FY21, while provisions and contingencies declined 4.2 per cent to Rs 18,414, according to a Business Standard analysis of 17 listed private lenders.
All lenders posted a profit after tax (PAT) in Q2FY21, while the two large lenders — Axis Bank and IDBI Bank — had reported losses in Q2 of 2019-20 (FY20), dragging down the profit performance. Sequentially, PAT grew 33.2 per cent over the first quarter (Q1) of FY21.
Domestic broker Motilal Oswal Financial Services (MOFSL) in a review said that private banks
had beaten expectations handsomely, with higher collection efficiency, uptick in loan growth, and healthy provision coverage ratio (PCR).
Seconding brokerage assessment, Prakash Agarwal, director and head-financial institutions, India Ratings and Research, said the banks’ results as well as the managements’ guidance has been encouraging, factoring in the intensity of impact of measures on gross domestic product. The September quarter marked the gradual reopening of the economy after sharp contraction in the April-June quarter. The Indian economy has shrunk 23.9 per cent in Q1FY21.
The performance is better than what was expected during the early part of the nationwide lockdown. The top banks seemed to have managed their portfolio reasonably well till now, said Agarwal.
NII growth was aided by various factors, including improvement in collection efficiency levels in September, after the six-month moratorium ended in August.
Anil Gupta, vice-president and sector head-financial sector ratings, ICRA, said collections have been at 95 per cent in September. A diligent follow-up with borrowers continued to better collections. Also some borrowers who opted for the moratorium continued to pay some instalments.
Analysts said the aggressive cuts in deposit rates also helped banks to contain interest outgo while reduction in lending rates was less intense. The weighted average domestic term deposit rates declined 127 basis points (bps), from 7.10 per cent in September 2019 to 5.83 per cent in September this year.
In June this year, the deposit rate was 6.15 per cent, according to the Reserve Bank of India data. The share of low-cost deposits — current account and savings account — went up for banks as people cut back expenses and kept higher balances in their accounts for uncertain times, said bankers.
For private banks, the weighted average lending rate declined 60 bps, from 11.12 per cent in September 2019 to 10.52 per cent in September this year. The lending rate was 10.66 per cent in June this year.
Absolute provisions and contingencies, too, declined. They came down 4.2 cent to Rs 18,414 crore in Q2FY21, from Rs 19,214 crore a year ago. Sequentially, the dip was more pronounced at 26.5 per cent, from Rs 25,403 crore in Q1FY21. Despite a contraction in the provisions, PCR for bad loans remains high as seen in the sharp drop in net NPAs.
MOFSL said bank managements indicated that the stress on asset quality due to the pandemic may not be as bad as initially feared, although banks continue to increase provisions for Covid-related stress.
Bankers said lenders front-loaded the provisions by setting aside amounts in the fourth quarter of FY20 and Q1FY21 for any rise in stressed assets in the future.
The asset quality improved, with gross NPA, declining annually and sequentially. Gross NPAs of 17 banks declined to Rs 1.80 trillion in September, from Rs 1.86 trillion in September 2019 and Rs 1.92 trillion in June this year.
The bad loan number is muted since banks have not treated loans NPAs in line with the SC interim order. The picture is expected to be clearer in the third-quarter (October-December) performance when slippages crystallise.
The window for one-time restructuring is open till the end of December. This will also have a bearing on the extent of bad loans since restructured accounts would be treated as standard.
The fall in net NPAs was bigger, indicating lower amounts remain to be provided for. The net NPAs were down to Rs 36,569 crore in September, from Rs 58,897 crore a year ago and Rs 45,066 crore in June.