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Synopsis

* Scheduled Commercial Banks’ (SCBs) Pre-Provisioning Operating Profit (PPOP) grew by 42.8% year-on-year (y-o-y) to Rs 1.3 lakh crore due to higher growth in Net Interest Income (NII), growth in treasury income, a low base and lower growth in Operating Expenses (opex). It marginally grew by 0.2% on a sequential basis. 

* The cost-to-income ratio of SCBs reduced by 333 bps y-o-y to 47.7% in Q1FY24 due to higher growth in NII than opex and robust growth in PSBs treasury income and fee income of PVBs. 

* Total income of SCBs grew by 37.5% y-o-y to Rs 4.86 lakh crore in Q1FY24 driven by interest income and other income, particularly the treasury income.

* The opex of SCBs rose by 25.0% y-o-y to Rs 1.19 lakh crore in Q1 FY24 due to higher employee costs.

PPOP Strong on y-o-y basis as Cost-to-Income Ratio Falls and Treasury Income Rises; Flattish q-o-q

* PPOP of SCBs grew by 42.8% y-o-y to Rs. 1.31 lakh crore in Q1Y24, while the PPOP margin expanded by 49 bps y-o-y to 2.30% in Q1FY24.

* PPOP of PSBs rose at a robust pace of 53.1% y-o-y in the quarter driven by higher growth in NII than Opex, robust growth in treasury income, and a low base. Large PSBs’ PPOP witnessed a growth of 54.8% in the quarter, outperforming other segments.

* Treasury income of PSBs came in at Rs. 9,159 crore in Q1FY24 vs. a loss of 3,502 crore in Q1FY23. It was also higher from Rs.5,323 crore in Q4FY23. 

* Private Sector Banks (PVBs) also reported a PPOP growth of 33.0% y-o-y in the quarter driven by growth in NII and non-interest income.

* Treasury income of PVBs came in at Rs. 3,781 crore in Q1FY24 vs. a loss of 539 crore in the year ago quarter.

* PSBs’ PPOP margin expanded by 53 bps to 1.93% in Q1FY24, meanwhile PVBs expanded by 38 bps to 2.93% in the quarter. 

* In terms of sequential performance, SCBs’ PPOP growth was muted due to seasonality impact, a rise in the cost of deposits, and a drop in the share of current account and savings account (CASA). Going ahead, PVBs are expected to continue reporting better PPOP margins.

* NII of SCBs grew by 26.5% y-o-y to Rs. 1.84 lakh crore in Q1FY24 due to healthy loan growth and a higher yield on advances over the year-ago period. The Net Interest Margin (NIM) of SCBs witnessed a y-o-y improvement of 36 basis points (bps), reaching 3.27% in Q1FY24. Meanwhile, the non-interest income of SCBs grew by 59.2% y-o-y in the quarter driven by robust growth in treasury income of the large PSBs and growth in fee income of PVBs

Figure 3: Cost to Income Ratio Reduces in the Quarter (y-o-y) – PSBs’ Reduce Sequentially

* Cost to Income ratio of SCBs reduced by 333 bps y-o-y to 47.7% in Q1FY24 due to higher growth in NII compared to opex growth coupled with robust growth in non-interest income. Banks had a higher cost to income in Q1FY23 as non-interest income was affected significantly due to Mark-to-Mark loss on investment portfolios particularly for PSBs due to a rise in the policy rates.

* Sequentially, SCBs' cost to income ratio dropped by 113 bps mainly driven by PSBs as their opex dropped in the quarter while PVBs' cost-to-income rose by 94 bps mainly driven by large PVBs. Despite the divergent trend, cost-to-income ratio of PSBs is still adverse compared to that of PVBs.

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