Banks to remain on profitable path in with robust credit growth

Public sector banks appear to be out of the woods as they managed to reduce their bad loans and post record profits this fiscal, a trend which is likely to continue in 2023 also. Robust credit demand and high interest rate regime due to tight monetary conditions globally are also expected to help the profitability of the banks. In the private sector banking space, consolidation remained the flavour, with parent HDFC Ltd deciding to merge with HDFC Bank, and Axis Bank announcing the takeover of the retail portfolio of global giant Citibank. These two deals are expected to be completed in 2023. According to Kotak Mahindra Bank Managing Director Uday Kotak, the Reserve Bank of India (RBI) may go for one more rate hike to 6.5 per cent from existing 6.25 per cent. RBI’s decision to hike the benchmark lending rate, repo rate, since May this year will have a bearing on the profitability of the banking sector as margins would get a leg up in the absence of commensurate increase in deposit rates. In the first half of current fiscal, 12 Public Sector Banks (PSBs), which account for around 60 per cent market share in terms of total business, posted a 32 per cent rise in cumulative net profit at Rs 40,991 crore. In September quarter, PSBs reported 50 per cent jump in their combined net profit at Rs 25,685 crore while their total profit surged 76.8 per cent to more than Rs 15,307 crore in the June quarter. Against the backdrop of the stellar performance of PSBs, Finance Minister Nirmala Sitharaman recently said the government’s efforts to reduce bad loans and further strengthen the financial health of the banks by infusing capital of about Rs 3 lakh crore in the last 5 years are showing results. The robust performance of the banks in the first half of current fiscal has been ably supported by a well-capitalised banking system that witnessed an upswing in credit disbursement to the retail, industry and services segments. The growth in credit to industrie