Tensions in the banking sector are expected to fall after the increase in charges, revenues will improve in Q2

AGREEMENT: The domestic banking sector continued to show an improvement in net interest income (NII) in the September quarter helped by falling interest expenses according to ETIGanalysis of the quarterly accounts for a sample of 27 listed banks.

The NII of the sample increased sequentially in the second quarter in a row to Rs 1.3 lakh crore compared to Rs 1.2 lakh crore in the previous quarter. The NII had fallen sequentially by 2% to Rs 1 lakh crore in the March quarter following a nationwide lockdown in the last week of March to limit the spread of the Covid-19 pandemic.

The improvement in NII was largely due to a sequential decline of 4.9% in total interest expenses in the September quarter, although interest income remained more or less flat.

State-run banks, including Punjab National Bank, Bank of Baroda, Bank of India, Indian Overseas Bank reported double-digit sequential growth in their respective NIIs for the September quarter. Among the best banks in the private sector Axis Bank and Kotak Mahindra Bank reported over 5% growth in NII, while HDFC Bank and ICICI Bank had growth below 1%.

The sector’s poor lending to loans continued to fall further amid the pandemic-related moratorium on interest payments. The test banks reported a total inflow of loan losses of Rs 33,075.7 crore compared to Rs 39,325.4 crore in the previous quarter. Provisions for bad loans have dropped significantly from Rs 54,629 crore in the March quarter. While the BNPA ratio is likely to increase in the second half of the current fiscal year, analysts expect stress to be moderate given the rising efficiency of the collection. “Overall GNPA the ratio for banks declined in Q2 due to the Supreme Court’s stay on NPA tagging, while most lenders indicated healthy trends in fundraising efficiency in September / October 20 and thus potentially moderate stress formation than expected earlier, “said Emkay Global Financial Services in a sector report.

Provision to cover the potential Covid-19 impact was reduced to Rs 11,664.6 crore in the September quarter from Rs 16,976 crore in the previous quarter. The majority of state-owned banks did not allocate new provisions. In the September quarter, the combined bad loans and Covid commissions fell by 20.5% sequentially to DKK 44,740.

The test banks have so far registered Rs 40,372 crore of Covid provisioning in the quarter.