Banking Sector Surges as Almost All Banks Exceed Q2 Profit Estimates
November 21, 2024 | Sachin Kumar
In a remarkable display of resilience and growth, the banking sector in India has shown strong performance in the second quarter of the fiscal year, with nearly all major banks exceeding profit projections. Out of 13 major public and private sector banks analyzed, 11 surpassed estimates set forth by analysts, marking a significant improvement compared to the previous year.
Robust Financial Results
The latest reports indicate that only two banks fell short of analysts’ profit expectations in Q2, a stark improvement compared to last year when eight institutions outperformed forecasts while five missed them. Notably, the public sector banks, including the State Bank of India (SBI), Punjab National Bank, Bank of Baroda, and Canara Bank, demonstrated exceptional performance by outperforming analysts’ estimates. This is particularly noteworthy for SBI, which had underperformed in the same quarter last year.
On the private sector side, HDFC Bank, ICICI Bank, and Axis Bank reported profits exceeding analysts’ expectations. Conversely, Kotak Mahindra Bank and IndusInd Bank did not meet the projections, a situation mirrored last year when these banks also underperformed.
Growth in Deposits Eases Concerns
A critical factor contributing to these positive results has been the growth in bank deposits. Market analysts have noted that several leading banks, including HDFC Bank, ICICI Bank, and Axis Bank, have reported stronger deposit growth compared to advances, alleviating worries about sluggish deposit growth in the sector.
"HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank have shown an increase in deposits that exceeds their loan growth in Q2," commented a senior analyst from a brokerage firm. Specifically, HDFC Bank recorded a 5.1% growth in deposits and a 1.3% rise in advances, whereas ICICI Bank saw a 5% increase in deposits alongside a 4.4% surge in loans. Axis Bank and Kotak Mahindra Bank also reported modest growth figures in deposits and advances.
Improvement in Asset Quality
In addition to higher income from non-interest sources, banks benefited from improved recoveries on bad loans, reduced provisioning costs, and advancements in asset quality. This comprehensive financial uplift enabled them to report net profits that exceeded expectations.
The non-interest income for public sector banks experienced significant growth, rising by 56.8%, primarily driven by mark-to-market gains and robust increases in fee income. Sanjay Agarwal, a senior director at CARE Ratings, noted that the treasury income for select banks also improved, rising by 14 basis points year-over-year.
Conclusion
The second quarter of 2024 has showcased a rebound in the banking sector’s profitability, indicating a robust recovery from past downturns. With effective strategies in place for deposit mobilization and improved asset management, the outlook for the banking industry appears optimistic. Investors are taking note of these developments as banks continue to navigate the changing economic landscape, ensuring they remain positioned for sustained growth.
As the trends evolve, it will be essential for banks to maintain this momentum for continued profitability in the future.
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