Public Sector Banks See Slight Profit Dip in Q2 FY25
As the earnings season for the second quarter of FY25 begins, public sector banks (PSBs) are expected to experience a small decrease in profits compared to the previous quarter. According to a report by Motilal Oswal, PSBs’ Profit After Tax (PAT) is estimated to decline by 0.6% quarter-on-quarter (QoQ), but show a stronger year-on-year (YoY) growth of 17.2%.
The report attributes the slower growth to flat net interest margins (NIMs) and a slight increase in loan loss provisions (LLP). The Net Interest Income (NII) for PSBs is expected to grow by around 6% YoY, although interest margins are likely to remain under pressure.
Despite these challenges, the report suggests that public sector banks are on track to achieve a compound annual growth rate (CAGR) of 15% between FY24 and FY26, indicating sustained long-term growth.
Mixed Results for Private Sector Banks
In the private sector, the report forecasts mixed results for the same quarter. For private banks, Pre-Provision Operating Profit (PPoP) is expected to grow by 12% YoY and 1% QoQ. However, PAT growth is predicted to be more modest, increasing by 5% YoY and 0.6% QoQ.
Looking ahead, private sector banks are expected to experience steady profitability growth, with earnings projected to grow at a CAGR of 12.4% over FY24-FY26.
Conclusion
Overall, while both public and private sector banks may face moderate growth in the second quarter due to margin pressures and higher provisions, their long-term earnings prospects remain positive.
Doubts Revealed
Public Sector Banks -: Public sector banks are banks where the government owns a major part of the bank. In India, examples include State Bank of India (SBI) and Punjab National Bank (PNB). They provide banking services to the public and are important for the country’s economy.
Q2 FY25 -: Q2 FY25 refers to the second quarter of the financial year 2025. In India, the financial year starts on April 1st and ends on March 31st, so Q2 FY25 would be from July to September 2024.
Net Interest Margins -: Net interest margin is the difference between the interest income a bank earns from its lending activities and the interest it pays to depositors, expressed as a percentage of its interest-earning assets. It is a measure of how well a bank is managing its assets and liabilities.
Loan Loss Provisions -: Loan loss provisions are funds that banks set aside to cover potential losses from loans that might not be repaid. It is like a safety net for banks to ensure they can handle bad loans without facing financial trouble.
CAGR -: CAGR stands for Compound Annual Growth Rate. It is a measure used to calculate the average annual growth rate of an investment over a specified time period, assuming the growth is compounded. It helps in understanding the growth trend over multiple years.
PAT -: PAT stands for Profit After Tax. It is the net profit a company makes after deducting all its expenses, including taxes. It shows how much money the company has actually earned after all costs are paid.