Mumbai: The banking sector posted its highest profits ever, rupee 1,02,252 crore, in FY21, a year the economy was hit by the pandemic. This is a significant turnaround from a net loss of almost Rs 5,000 crore to the industry in FY19.
Two banks – HDFC Bank and SBI – contributed half of the industry’s profits. Of the total profit, HDFC Bank at Rs 31,116 crore accounted for 30%, an increase of 18% over the previous year. The country’s largest lender, SBI, accounted for an additional 20% at Rs 20,410 crore. The third highest was ICICI Bank, which earned Rs 16,192 crore, more than double what it earned the year before. Private banks also gained market share as public sector banks (PSBs) slowed down their lending activities.
The most significant turnaround occurred among PSBs who reported collective net profit for the first time in five years. Only two of the 12 PSU banks – Punjab & Sind Bank and Central Bank of India – reported a net loss for the year. In the private sector, Yes Bank remained in the red with a net loss of Rs 3,462 crore as it continued to make provisions. However, for banks in the red, losses were lower than they reported the year before.
The main reason PSB posted such a turnaround of Rs 57,832 crore – from a loss of Rs 26,015 crore in FY20 to a combined profit of Rs 31,817 crore – was the end of their old bad debt problem. This burden peaked after the RBI forced banks to classify 12 large delinquent accounts, followed by 40 more accounts, as non-performing assets and initiate bankruptcy proceedings. Considering the size of these exposures, this decision resulted in the deterioration of loans worth Rs 4 lakh crore. By March 2020, banks had finished provisioning most of these loans. Additional provisions were offset by large recoveries from previous written off accounts, and the banks stopped bleeding. pre-tax profits in fiscal year 21. The rating agency added that with the exception of SBI, the profits from the sale of bonds exceeded the pre-tax profits of all other public banks. Profit from bond sales exceeded the government-infused Rs 20,000 crore capital in FY21.
The value of government bonds rises when interest rates fall. The RBI’s aggressive decision to keep rates low reduced interest income, but allowed huge gains in treasury revenue. The year 2020-2021 was also a year of consolidation for the 10 public sector banks which merged into four. Last year, the merging entities suffered huge losses in the fourth quarter before the merger, which contributed to the loss of Rs 26,015 crore among PSU banks in fiscal year 20. This year, the Acquiring banks made profits, Indian Bank topped the list at Rs 3,004 crore, followed by Union Bank at Rs 2,905 crore.
The impact of the pandemic is not yet reflected in banks ‘balance sheets as lenders have been allowed to restructure defaulters’ loans. In the second wave, the RBI allowed banks to give distressed borrowers one more year to repay. Since large corporate accounts are unaffected, banks don’t expect pandemic defaults to cause losses in the future.
Two banks – HDFC Bank and SBI – contributed half of the industry’s profits. Of the total profit, HDFC Bank at Rs 31,116 crore accounted for 30%, an increase of 18% over the previous year. The country’s largest lender, SBI, accounted for an additional 20% at Rs 20,410 crore. The third highest was ICICI Bank, which earned Rs 16,192 crore, more than double what it earned the year before. Private banks also gained market share as public sector banks (PSBs) slowed down their lending activities.
The most significant turnaround occurred among PSBs who reported collective net profit for the first time in five years. Only two of the 12 PSU banks – Punjab & Sind Bank and Central Bank of India – reported a net loss for the year. In the private sector, Yes Bank remained in the red with a net loss of Rs 3,462 crore as it continued to make provisions. However, for banks in the red, losses were lower than they reported the year before.
The main reason PSB posted such a turnaround of Rs 57,832 crore – from a loss of Rs 26,015 crore in FY20 to a combined profit of Rs 31,817 crore – was the end of their old bad debt problem. This burden peaked after the RBI forced banks to classify 12 large delinquent accounts, followed by 40 more accounts, as non-performing assets and initiate bankruptcy proceedings. Considering the size of these exposures, this decision resulted in the deterioration of loans worth Rs 4 lakh crore. By March 2020, banks had finished provisioning most of these loans. Additional provisions were offset by large recoveries from previous written off accounts, and the banks stopped bleeding. pre-tax profits in fiscal year 21. The rating agency added that with the exception of SBI, the profits from the sale of bonds exceeded the pre-tax profits of all other public banks. Profit from bond sales exceeded the government-infused Rs 20,000 crore capital in FY21.
The value of government bonds rises when interest rates fall. The RBI’s aggressive decision to keep rates low reduced interest income, but allowed huge gains in treasury revenue. The year 2020-2021 was also a year of consolidation for the 10 public sector banks which merged into four. Last year, the merging entities suffered huge losses in the fourth quarter before the merger, which contributed to the loss of Rs 26,015 crore among PSU banks in fiscal year 20. This year, the Acquiring banks made profits, Indian Bank topped the list at Rs 3,004 crore, followed by Union Bank at Rs 2,905 crore.
The impact of the pandemic is not yet reflected in banks ‘balance sheets as lenders have been allowed to restructure defaulters’ loans. In the second wave, the RBI allowed banks to give distressed borrowers one more year to repay. Since large corporate accounts are unaffected, banks don’t expect pandemic defaults to cause losses in the future.
