InvestorQ : How did Bank of Baroda and Bank of Maharashtra give a better profit performance in the June quarter compared to SBI?
vidhya Laxmi made post

How did Bank of Baroda and Bank of Maharashtra give a better profit performance in the June quarter compared to SBI?

sarah Leo answered.
2 months ago

The quarter ended June 2022 has been a positive quarter for the public sector banks in terms of profit growth as well as other parameters like asset quality and provisioning volumes. For the quarter ended Q1FY23, the profits of PSU banks on aggregate were up 9.2% at Rs15,306 crore. This is in comparison to the previous first quarter of last year. Out of the 12 surviving PSU banks, 3 key banks viz. SBI, BOI and PNB witnessed fall in profits on account of higher mark to market losses written off in the investment portfolios.

In the first quarter of FY22, SBI was leading the growth. In the first quarter of FY23, SBI still contributes 40% of the volume of profits of the PSU banks but SBI saw fall in profits to Rs6,068 crore. IN fact, State Bank of India, Punjab National Bank and Bank of India reporting lower profits ranging from 7% to 70% lower. So the 9.2% growth is despite tepid profit performance from SBI and also from PNB and Bank of India. But let us quickly understand why these MTM losses have to be written off?

MTM losses are written off from the bond investment portfolio, when the bond yields go up. That is because, bond prices are inversely related to the bond yields. That means; when bond yields go up, the bond prices will come down. Hence, the bond portfolio of the market that has to be mandatorily marked to the market, would be written down to the extent of the capital loss due to the yield spike. That is what led to lower profits for SBI, PNB and BOI while the other 9 PSU banks reported higher profits on a yoy basis.

You are right that the big gainers in terms of rupee profits were Bank of Baroda and Bank of Maharashtra. For instance, Bank of Baroda saw its net profits grow 79% yoy to Rs2,168 crore for the June 2022 quarter. At the same time, the net profits of Bank of Maharashtra more than doubled to Rs452 crore in Q1FY23. BOB made the second highest contribution to the overall profit pool after SBI, which makes it significant. However, this comes with a legacy of huge losses over the last few fiscal years for the PSU banks.

First, the good news on an annualized basis! In FY22, the combined net profits of all the PSU banks put together more than doubled to Rs66,539 crore, against just Rs31,816 crore in FY21. However, PSU banks made persistent losses overall for 5 full years between FY16 and FY20. The losses were Rs85,370 crore in FY18, Rs66,636 crore in FY19, Rs25,941 crore in FY20, Rs17,993 crore in FY16 and Rs11,389 crore in FY17. On the back of such legacy of losses, it is gratifying that there has finally been a turnaround.