Q2FY25 results review: PNB, BoB to Canara Bank — Profit of PSBs jumps 35.4% to ₹45,550 crore

Indian public sector banks (PSBs) delivered a robust performance in the September quarter (Q2FY25), surpassing their private-sector peers. This was driven by a drop in provisions and a notable improvement in asset quality. Additionally, a surge in non-interest income and Treasury profits helped state-run lenders report a strong show in Q2.

The combined net profit of 12 Indian PSBs rose by 35.39 per cent to ₹45,550 crore in Q2 FY25, according to data compiled by LiveMint. The country’s largest lender, State Bank of India (SBI), accounted for about 40.24 per cent of the net profit of PSBs in Q2 FY25.

In the same quarter last year, PSBs reported a combined net profit of ₹33,643 crore. Sequentially, net profit also increased, with PSBs recording ₹39,974 crore in the first quarter of the current fiscal year.

PNB leads profit growth among PSBs

In terms of net profit growth, Punjab National Bank led the pack with an impressive year-on-year (YoY) growth of 145 per cent, surging from ₹1,756 crore in September 2023 to ₹4,306 crore in September 2024. Asset quality also improved, with PNB’s gross NPAs falling to 4.48 per cent from 6.96 per cent a year ago, while net NPAs dropped to 0.46 per cent from 1.47 per cent.

Bank of India followed with strong YoY growth of 63 per cent, as its profit rose from ₹1,458 crore to ₹2,373 crore. Central Bank of India recorded a 51 per cent increase, with profits rising from ₹605 crore to ₹913 crore on a YoY basis. Its gross and net NPAs have come down to 4.59 per cent and 0.69 per cent, respectively.

UCO Bank reported a 50 per cent YoY jump in net profit to ₹603 crore, alongside reductions in gross NPAs to 3.18 per cent and net NPAs to 0.73 per cent. Bank of Maharashtra also showed stellar growth of 44 per cent YoY, increasing from ₹920 crore to ₹1,327 crore.

Additionally, Union Bank of India reported a 34 per cent rise in net profit, growing from ₹3,511 crore to ₹4,720 crore YoY. Indian Bank also saw a 36 per cent increase in profit, reaching ₹2,707 crore, while reducing gross NPAs to 3.48 per cent and net NPAs to 0.27 per cent.

Bank of Baroda recorded a 23 per cent YoY rise in profit to ₹5,238 crore. Its gross NPAs improved to 2.5 per cent and net NPAs to 0.6 per cent.

Deposit war continues

In recent years, banks have observed a shift in investors' focus toward investing in capital markets rather than saving in traditional fixed deposits. This has led to a "deposit war" within the banking system, which is ongoing, causing lenders to trim both deposit and loan growth targets.

Additionally, several small finance banks (SFBs) have raised their fixed deposit rates to over 8 per cent for two-year terms. These higher rates put SFBs in direct competition with larger banks, as their deposit rates are now 100–120 basis points higher than a year ago, highlighting the increasing challenges banks face in attracting deposits.

Amid this backdrop, Bank of Baroda has adjusted its advances growth target for the second quarter to 11-13 per cent, down from the previous target of 12-14 per cent, and its deposit growth target to 9-11 per cent, compared to the earlier guidance of 10-12 per cent.

In its recent report, domestic brokerage firm B&K Securities highlighted that deposit growth in the country is expected to decelerate to 11.2 per cent YoY in fiscal year 2025. According to the report, deposit growth at the end of fiscal year 2024 was recorded at 13.8 per cent YoY.

Private sector banks post moderate profit growth

Private sector banks displayed more moderate profit growth in Q2 FY25. Axis Bank recorded the highest profit increase among private players, with an 18 per cent rise, followed by ICICI Bank with a 14.5 per cent increase.

HDFC Bank and Kotak Mahindra Bank showed modest profit growth of 5.3 per cent and 4.8 per cent, respectively, while IndusInd Bank experienced a notable decline in profit by 39.6 per cent.

Overall, private sector lenders reported an 8.21 per cent growth in net profit during Q2. On the asset quality front, HDFC Bank, Kotak Mahindra Bank, IndusInd Bank, RBL Bank, and IDFC First Bank saw gross bad loans as a percentage of total assets increase by 2 to 19 basis points during the quarter.

Most of these private banks have raised provisions, setting aside additional funds to cover potential defaults, particularly in anticipation of rising pressures in unsecured lending segments.

Lenders with a higher share of unsecured loans are experiencing greater stress compared to those focused on secured lending. Segments such as personal loans and credit cards, in particular, are facing heightened default risks.

The RBI has been highlighting the significant growth in unsecured lending over the past year, along with potential challenges related to asset quality. In November 2023, the central bank increased the risk weights on specific segments of unsecured loans, such as personal loans and credit cards, by 25 percentage points, bringing them to 125 per cent.

Additionally, it raised the risk weights on bank credit to NBFCs. Following the COVID-19 pandemic, banks significantly increased their lending to NBFCs, primarily driven by the growth in retail and unsecured loans.

On the other hand, private banks maintained a stronger domestic Current Account Savings Account (CASA) ratio during the September quarter. Kotak Mahindra Bank led with a CASA ratio of 43.6 per cent, closely followed by ICICI Bank at 40.6 per cent. 

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