PSBs exhibited remarkable financial performance in Q1FY24, with Pre-Provisioning Operating Profit growing at an impressive pace of 53.1% y-o-y while it was 33% for private sector banks. However, PVBs capitalised on growth opportunities more.
The first quarter of FY24 has witnessed remarkable financial performance in India’s banking sector, with both Public Sector Banks (PSBs) and Private Sector Banks (PVBs) reporting substantial growth in various financial parameters. In Q1FY24, PSBs and PVBs demonstrated robust growth in their Pre-Provisioning Operating Profit (PPOP), a key operating metric. SCBs, which include both PSBs and PVBs, collectively post a remarkable 42.8% year-on-year (y-o-y) growth in PPOP, reaching Rs. 1.3 lakh crore. Key contributors to this growth include higher Net Interest Income (NII), treasury income, a low base effect, and controlled operating expenses.
Profitability metrics: PSBs versus PVBs
Cost-to-income ratio: The cost-to-income ratio, a critical indicator of efficiency, decreased significantly for SCBs as a whole, declining by 333 basis points (bps) y-o-y to 47.7% in Q1FY24. This reduction was primarily driven by the stronger growth in NII compared to opex and substantial growth in treasury income and fee income. However, despite the improvement, PSBs still exhibit a less favourable cost-to-income ratio compared to PVBs.
Net interest income (NII): SCBs reported a noteworthy 26.5% y-o-y increase in NII, reaching Rs. 1.84 lakh crore in Q1FY24. This growth was attributed to healthy loan expansion and higher yields on advances. The Net Interest Margin (NIM) also improved, showing a y-o-y increase of 36 bps to 3.27% in Q1FY24. PVBs, in particular, reported a strong performance in NII, indicating their ability to harness growth opportunities.
Non-interest income: SCBs’ non-interest income surged by an impressive 59.2% y-o-y in the quarter, driven by robust growth in treasury income among large PSBs and fee income in PVBs. Treasury income is a significant contributor to the resurgence of PSBs, particularly in Q1FY24, as they shifted from a loss to a substantial gain in this category.
Segment-wise profitability
PSBs exhibited remarkable financial performance in Q1FY24, with PPOP growing at an impressive pace of 53.1% y-o-y. The growth was driven by a stronger expansion of NII compared to Opex, robust treasury income, and a low base effect. Large PSBs outperformed other segments, achieving a PPOP growth of 54.8% in the quarter. Treasury income of PSBs experienced a remarkable turnaround, recording a gain of Rs. 9,159 crore in Q1FY24, compared to a loss of Rs. 3,502 crore in the same period the previous year.
PVBs also reported notable profitability growth, with PPOP expanding by 33.0% y-o-y in Q1FY24. This growth was driven by the expansion of NII and non-interest income. PVBs managed to reverse their treasury income losses from the previous year, achieving a treasury income of Rs. 3,781 crore in the quarter.
While PSBs showcased robust performance and a significant recovery in treasury income, PVBs demonstrated their ability to capitalise on growth opportunities. The cost-to-income ratio remains a challenge for PSBs compared to their private counterparts, signalling the need for continued efforts to enhance operational efficiency.
