Net profit increased to Rs 14,330 crore in the quarter ended September 2023 from Rs 13,265 crore a year earlier due to a 12% growth in advances, led by a 23% growth in loans to small and medium enterprises (SMEs). Total provisions fell sharply to Rs 115 crore in September 2023 from Rs 3039 crore a year earlier because the bank benefited from a Rs 1295 crore write back from accounts which recouped delayed payments earlier. Net profit was in line with a poll of analysts by Bloomberg which had predicted Rs 14,329 crore.
The large provision write-back helped the bank report a rise in net profit despite a 8% year-on-year drop in operating profit. Operating profit fell because of a sharp 37% increase in expenses to Rs 92,753 crore in September 2023 due to a 47% increase in employee costs mainly as the bank provided Rs 3417 crore to account for wage, pension and gratuity revisions during the quarter.
Chairman Dinesh Khara said the bank hiked its employee provisions during the quarter assuming a 14% increase in wages. The bank has been setting aside money for a likely salary revision effective from November 2022 and Khara said it has so far provided a cumulative Rs 8900 crore for the same.
“Profits have been a bit muted because of this one-time provision that we had to take. Otherwise we have seen growth and expect the momentum to continue. We expect credit growth to be 16% to 17% in the next fiscal. Domestic demand is robust and will be further boosted by festival linked spending,” Khara said.
The bank’s net interest income increased 12% to Rs 39,500 crore, but net interest margin which is the difference between the yield the bank earns on loans and that it pays on deposits dropped, to 3.43% from 3.55% for its domestic loans. Khara however said he does not expect NIM to fall further and it is likely to be around the current range for the rest of the year.
Retail growth continued to outpace corporate growth at 16% versus 7%. Khara however said that companies are slowly availing of loans and the bank is sitting on a Rs 4.77 lakh crore pipeline of loans awaiting sanctions and disbursals.Khara also allayed concerns over the bank’s unsecured loans saying that the trend for these loans is “better than secured loans” with gross NPA of 0.69%. The bank has a Rs 3.20 lakh crore of unsecured loans called Xpress credit. “About 94% of our loans are to government employees and paramilitary and armed forces with the remaining 6% to highly rated companies. There is no apprehension regarding these loans,” Khara said.
The bank’s gross NPA ratio fell to 2.55% from 3.52% a year ago. The bank has a 75% provision coverage ratio and has provided for 99% of its corporate NPAs. Khara said the bank expects to end the year with a capital adequacy of more than 15% and provisions are already higher than what is needed.
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