Indian banks have performed considerably well in the July-September quarter for the first time after the pandemic hit the economy hard. Be it in terms of recovering bad loans, generating better profits, having higher provisions, both the public and private sector banks have witnessed positive traits. With the fall in non-performing assets (NPAs), there has been considerable credit growth as well.

Due to their strong performance in this quarter, the majority of the banks even witnessed a surge in their share prices as well, resulting in wealth gain for investors. In fact, the State Bank of India recently hit a lifetime high while the Bank of Baroda made a fresh 52-week high on account of strong Q2 results.

Here is a brief evaluation of the quarterly results of commercial banks:

1. Surging Profit

Both the private banks and the public service banks have reported a jump in profit by more than 50 per cent as compared to the corresponding period last fiscal. The collective profit of the private banks stood at Rs 33,165 crore, 67 per cent more than Rs 19,868 crore in Q2FY22. Public sector banks also recorded a combined net profit of Rs 25,685 crore in the quarter under review, a rise of nearly 50 per cent from Rs 17,123 crore from the same period a year ago.

The profit earned by the largest lender, State Bank of India (SBI) contributed the most to the profit earned by the sector. SBI posted its highest quarterly earnings of Rs 13,256 crore, an increase of 74 per cent  from the same quarter last fiscal. One of the major factors that contributed to the surge in the profit of the banks is their ability to generate capital on their own. According to various bankers, the majority of the banks have been able to raise their capital in this quarter from the market on a standalone basis.

2. Falling NPAs and fewer slippages

The non-performing assets (NPA) of the banks became one of the growing concerns post-pandemic as there have been several loan defaults. Thereafter, in every quarter, the NPA was on the rise until this quarter, when most of the banks succeeded in bringing down the NPAs. The asset quality of the Bank of Baroda improved as the gross NPA went down by 95 bps to 5.31 per cent. Similarly, the slippage ratio also recovered this quarter. The slippage ratio for BoB declined to 1.53 per cent in H1FY23 as against 2.45 per cent in H1FY22.

Slippages happen when a bank's assets become a non-performing asset (NPA) owing to the borrower not paying interest for over 90 days. A sequential moderation leads to low gross non-performing asset (GNPA) ratios across banks in slippages and better recoveries/upgrades. In fact, Punjab and Sind Bank which recorded high slippages in the quarter as compared to the previous quarter, saw improvements in recovery, thereby balancing the overall profit.

In Q2FY23, SBI's slippage ratio stood at 0.33 while it was 1.38 in Q1. The country's largest lender reported its slippage ratio at 0.66 in Q2FY22. Majority of the PSU banks have managed to improve their slippage on both QoQ and YoY basis.

3. Improvement in Provisions

Provisioning for bad assets, which contributed significantly to the low profits of the banks in the previous quarters, also declined drastically since the June quarter. For most banks, the provision coverage ratio remained very high this quarter. ICICI Bank witnessed one of the best improvements in terms of provisioning as the provisions and contingencies declined by 39 percent YoY. Axis Bank's specific loan loss provisions for Q2FY23 also declined by 19 per cent  YoY to Rs 751 crores from Rs 927 crores in Q2FY22. 

4. Higher credit growth

Despite repeated rate hikes by the banks, there has been a remarkable rise in the number of loans disbursed, according to RBI data. Most of the banks witnessed robust lending growth to retail and housing post the pandemic, but there has been a drastic fall in the corporate loan books. SBI reported credit growth at 19.93 per cent YoY. Bank of Maharashtra topped the list among public sector lenders in terms of loan growth in Q2FY23. The bank recorded a 28.62 per cent increase in gross advances at Rs 1,48,216 crore at the end of September 2022, according to published quarterly numbers of public sector banks (PSBs). The Indian analytical company, CRISIL predicted that the banks and other lenders are likely to see a credit growth at 15 per cent in the upcoming quarters mainly driven by non-corporate loan disbursals.

5. Slow deposit growth

Despite performing well in this quarter on multiple aspects, most of the banks have witnessed a slow pace in deposit growth. Although the banks have increased fixed deposit rates, the number of new accounts didn't spike accordingly.