5 Indian Banks that Posted Record High Profits in FY23. Will the Dream Run Continue?

Imagine being trapped on a ship amid a raging cyclone, surrounded by a boundless ocean. Relentless rain, fierce winds, and blinding thunderstorms have instilled sheer terror in everyone on board.

With treacherous aquatic creatures and freezing waters posing imminent dangers, the stranded individuals find themselves in a predicament where even jumping off the ship is not an option.

After enduring an extended period of chaos and turbulence, a sense of relief finally washes over the ship's occupants as the once tempestuous sea gradually settles. Overwhelmed with joy, they celebrate their escape from peril.

Interestingly, this situation bears striking resemblance to the current plight of investors in Indian banking stocks.

The banking sector stocks remained stagnant for almost a decade because of the cyclone in the banking sector. Poor balance sheets, rising NPAs, huge defaults in repayment, and failed attempts at recovery, scared investors.

But now after a decade, the banking sector is finally in a sweet spot.

In 2022, the Bank Nifty index hit a new lifetime high multiple times on the back of bright prospects.

In fact, Indian banking companies and their regulation became so strong that they remained resilient even in the face of the recent global banking crisis in the US.

Banking sector stocks continue to remain in focus even now as many PSU banks have reported stellar quarterly results.

Sectoral tailwinds in 2023

In the financial year 2023, many banks reported a significant jump in their net profit and net interest income (NII). This was driven by the massive momentum in credit growth all over the country.

Due to the lack of economic activities during the pandemic, people saved up a lot of money. Both retail deposits and retail loan disbursement fell.

However, in the financial year 2023, economic activities finally revived. To boost their businesses, people reached out to banks for loans and that resulted in sharp credit growth.

A subtle rise in retail loans (personal loans, housing loans, etc.) boosted credit growth. In an interview, the president and head of consumer banking of the Kotak Mahindra Bank, Virat Diwanji, explained why housing loans increased post-pandemic. Here's him -

" ... The psyche of people post Covid-19 is that roti, kapda hai.... makaan karna hi hai ..."

Improved asset quality also boosted investor confidence in 2023. Asset quality improved due to better provisioning, reduced slippages, and increased deleveraging by corporates.

The government's efforts at improving the overall economic scenario also helped the growth. The government's extensive recapitalisation exercise of public sector banks over the years helped them become more self-sufficient.

In short, increased write-offs, higher loan growth supported by slower slippages and improved recoveries were the key factors driving the performance of banking stocks. Little wonder that even the worst performing Indian banks were doing good in 2023.

Now let's take a look at five banking companies that have posted record numbers in FY23.

# 1 Bank of Baroda (BoB)

The public sector bank's profitability increased almost 100% in the financial year 2023.

Net profit for the year stood at Rs 141.1 billion (bn). The asset quality during the year improved while deposit growth remained strong.

For the financial year, its net interest income (NII) stood at Rs 413.6 bn, up 27% on a YoY basis. Retail banking was the highest-earning segment of the bank. It contributed to 38.5% of the total revenue.

Gross non-performing assets (NPA) fell to 3.79% in the January-March period, compared with 6.61% in the year-ago quarter.

Meanwhile, net NPAs too were at a record low of 0.89% in March 2023 as against 1.72% in March 2022.

Bank of Baroda declared a dividend of Rs 5.5 per equity share for the financial year 2023.

Even the quarterly results of BoB were impressive. The public lender reported its highest-ever quarterly net profit of Rs 47.8 bn, up 168% in March 2023 quarter as against a profit of Rs 17.8 bn in the corresponding quarter of the last year.

The NII of the lender increased 33.8% to Rs 115.3 bn during the quarter from Rs 86.1 bn yearly. Net interest margin (NIM) rose to 3.31% in March 2023 from 3.03%, in March 2022.

BOB has undertaken various initiatives which may give the bank an edge over its peers. It has launched international UPI remittances in Mauritius, Nepal, Bhutan, UAE, and Singapore.

During the financial year 2023, it also launched UPI credit cards, a digital onboarding solution (POS) for merchants. It has also facilitated the automation of inward remittances.

New initiatives combined with sectoral tailwinds may drive growth in the coming quarters.

In the past year, Bank of Baroda share price is up 85.9% while it is down 1.6% on a YTD basis.

To know more, check out its factsheet and quarterly results.

#2 Bank of Maharashtra

During the financial year 2023, the Bank of Maharashtra's profit zoomed around 126%. For the financial year 2022-23, its net profits stood at Rs 26 bn.

Its yearly NII stood at Rs 77.4 bn, up by 27% on a YoY basis. It earns a fair share of interest from loans to corporate and others. Around 43% of the bank's gross advances portfolio lies with the corporate and others segment.

Bank of Maharashtra's asset quality also improved. In the quarter under review, gross NPA stood at 2.47%, down 0.47% on a yearly basis.

Net NPA fell to 0.25% against 0.97% a year back.

For the financial year 2023, the Bank of Maharashtra declared a dividend of Rs 1.3 per equity share.

If we look at the March 2023 quarter, Bank of Maharashtra's net profit jumped nearly 1.5x in the said quarter.

In Q4 of the financial year 2023, its net profit rose 135% to Rs 8.4 bn compared to Rs 3.6 bn in the corresponding quarter of the previous financial year.

NII for the said quarter increased by more than 35% to Rs 21.9 bn from Rs 16.1 bn reported in March 2022.

In the coming few quarters the management expects advances to slow down by 2-3% whereas the deposits may continue to grow at the same pace.

For the financial year 2024, the management has set a target of achieving business worth Rs 5,000 bn.

In the past one year, the Bank of Maharashtra share price is up 77.7% while it is down 4.3% on a YTD basis.

To know more, check out its factsheet and quarterly results.

#3 Federal Bank

For the financial year 2023, Federal Bank reported a total profit of Rs 30.1 bn, up 59% from Rs 18.9 bn reported in the previous financial year.

NII of the bank also increased substantially by 21%. NII for the year stood at Rs 72.3 bn. The rise in NII was on the back of growing advances to high-yielding advances. Revenue share from these select segments increased to 19.3% from 17.2% as of March 2023.

According to the company, the gross NPA and net NPA for the reporting quarter were down to 2.36% and 0.69%, respectively.

The board recommended a final dividend of Rs 1 per share for the financial year 2023.

The bank reported a 67% YoY jump in its net profit at Rs 9 bn for the March 2023 quarter. The private sector lender posted its highest-ever operating profit of Rs 13.4 bn, which was also up 67%, on a yearly basis.

NII increased to Rs 72.3 bn from Rs 59.6 bn in March 2022 quarter registering a growth of 21.3%. Net Interest Margin (NIM) stood at 3.31% for the financial 2023.

The company is looking out for credit growth in the coming quarters. There is a fair degree of traction in all new businesses of the bank, and the management believes that should give it some kind of fillip.

In the past one year, Federal Bank share price is up 44.1% while it is down 9% on a YTD basis.

To know more, check out its factsheet and quarterly results.

#4 Canara Bank

In the financial year 2023, for the first time, Canara Bank's profit crossed Rs 100 bn.

It reported a net profit of Rs 106 bn in the financial year 2023, up 86.8% from the profit reported in the previous financial year.

In the year under review, the NII increased by 19.2% to Rs 31.4 bn. The rise in NII was driven by major sectoral tailwinds and substantial credit growth.

Canara Bank improved its asset quality over a year ago period as gross NPAs reduced to 5.35% in the March 2023 quarter, down from 5.89% at the end of March 2022.

Net NPAs ratio has also declined to 1.73% as of March 2023 from 2.65% as of March 2022.

For the said financial year, the company declared a dividend of Rs 12 per equity share.

In March 2023, Canara Bank reported a net profit of Rs 31.8 bn, up 90% YoY. The figure stood at Rs 16.7 m in the same quarter last year.

NII grew 23% YoY to Rs 86.2 bn for the quarter under review. It was Rs 70.1 bn in the corresponding quarter of the last financial year.

The has undertaken various new initiatives such as virtual debit cards and centralized issuance of credit cards, API banking etc.

However, sectoral headwinds may hurt the bank's growth in the coming few quarters.

In the past one year, Canara Bank share price is up 54.7% while it is down 8.8% on a YTD basis.

To know more, check out its factsheet and quarterly results.

#5 State Bank of India

State Bank of India (SBI)'s net profit crossed the mark of Rs 500 bn. It is the highest-ever net profit reported by any bank.

India's largest bank reported a net profit of Rs 502.3 bn. It is up 58.6% on a YoY basis.

NII for the financial year 2023 increased by 20% on a yearly basis. The bank saw robust credit growth across all sectors. NII also saw growth on the back of improvement in yields and continuing credit offtake.

On the asset quality front, the gross NPAs ratio improved to 2.78% as of March 2023 quarter, down from 3.97% in the March 2022 quarter.

The net NPA ratio was lower at 0.67% in March 2023 quarter. In March 2022, net NPAs stood at 1.08%.

The board declared a dividend of Rs 11.3 per equity share for the financial year 2023. The date of payment is fixed on 14 June 2023.

SBI reported an 83% growth in standalone net profit at Rs 166.9 bn for the March 2023 quarter. Net profit stood at Rs 91.1 bn in the same quarter last year.

NII for the fourth quarter rose 29% to Rs 403.9 bn, compared with Rs 312 bn in the corresponding quarter of last year. The domestic NIM during the quarter increased 44 basis points YoY to 3.84%.

Going forward management that the company will have an opportunity for credit growth as far as the loan book is concerned. It should be growing somewhere in the range of between 12% to 14% overall.

However, the deposit growth rate may not be as sharp as the credit growth rate.

In the past one year, SBI share price is up 24.9% while it is down 4.3% on a YTD basis.

To know more, check out its factsheet and quarterly results.

The road ahead for banking stocks

Experts believe that strong fundamentals of the local economy will support credit growth and prevent deterioration in asset quality.

According to various analysts, banks' profitability will stabilise after improving in the past few years as the boost from declines in loan-loss provisions wanes. Banks' capital, funding and liquidity will be stable and supportive of credit growth.

Credit growth in the financial year 2024 may be slower compared to the growth rate in 2023. In the next 12-18 months' profitability will hold steady but gains in margin will be limited.

This is partly due to a tightening of liquidity conditions, which will force banks to increase their deposit rates faster than hikes in lending rates.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...