Why have private banks in India taken a hit on qoq profit growth in the June 2022 quarter?

Most of the major private banks that have announced results for the June quarter like HDFC Bank, ICICI Bank and Kotak Bank have one thing in common. Their profit numbers are attractive on a yoy basisi, but not so much on a qoq sequential basis. Out of the 3 heads of revenues viz. retail banking, wholesale banking and treasury; these banks have taken a hit on their treasury income. This hit has come about largely on account of rising bond yields in the quarter, which led to bond depreciation and treasury losses for these banks.

That has been a key reason for the sequential fall in profits of banks in this quarter. For instance, out of the eleven private sector banks that announced results for Q1FY23, aggregated net profit were sequentialliy down by -9% over March 2022 quarter. However, on a yoy basis, these profits were still higher by 40%. Treasury losses were led by HDFC Bank and Kotak Bank, which made rather large provisions in the quarter for treasury losses as they provided for bond depreciation amidst rising yields.

For the June 2022 quarter, HDFC Bank reported treasury losses of Rs1,310 crore due to mark-to-market (MTM) losses on the bond portfolio. At the same time, Kotak Bank also witnessed MTM losses to the tune of Rs857 crore on its trading book. Interestingly, ICICI Bank, Federal Bank and IndusInd Bank posted healthy treasury incomes in Q1FY23. If the impact of MTM losses are excluded then most private sector banks had done better better on the bottom line, even on a sequential basis.

Other than the issue of margins and NPAs in control, there was also the story of higher slippages on the retail book. For instance, ICICI Bank saw fresh slippages of Rs5,825 crore in the June quarter out of which nearly Rs5,037 crore was from the retail book. Most banks are not too worried about retail slippages as the probability of recovery is much better than the wholesale book. Lower credit costs helped banks, although rising yields are a risk.