Fourth Quarter Earnings Watch: Banks’ Income hits a quarter-high, but not because of loans
Strong non-core or fiscal revenues in the January-March quarter increased the number of domestic banks.
one Mint Analysis by 97 listed banks, financial services and insurance (BFSI) companies that have reported earnings so far showed that total revenue and adjusted bank net profit rose to a quarter-high as government bond holding yields fell during the period.
According to the analysis, non-core income mainly includes earnings from government securities, accounting for 16% of total bank revenue in the March quarter, compared with 12.5% in the previous quarter. Although the bank's core income growth is slightly higher than the difference in its non-core income, the contrast seems to be sharp, although on a lower basis.
Their non-core revenue grew by 35% in the previous quarter, while net interest income (core revenue) rose by only 1.6%. Heavyweights like the National Bank of India (SBI) see the Ministry of Finance’s earnings soar to ₹From 690 billion ₹12 billion this quarter due to lower production and reverse G-SEC ₹Nuvama Institutional Stock said government-guaranteed securities had Rs 39 billion.
Read more: Treasury earnings save SBI one day, but can't reduce revenue
As a result, banks are improving their top and bottom lines with considerable gains from their treasury revenue, according to the latest Reserve Bank of India (RBI) March data. This obscures a deeper trend that the continued slowdown in private capital expenditure has stagnated meaningful growth in bank corporate loan books.
The capital expenditure revival is still far away
A recent National Office of Statistics survey showed that private sector capital expenditures fell further after a meager rise in fiscal 25. According to a recent report by Elara Securities, this suggests that a meaningful revival of sector growth in large industries may still take time. At a time when overall loan growth is witnessing a broad slowdown, underscoring expectations, brokers expect any recovery rate of bank core income to be “extended”.
Meanwhile, non-bank financing (NBFC), asset management (AMCS) and insurers reported a sluggish revenue in the fourth quarter, mainly due to limited holdings of their government securities. Banks hold most government documents to maintain liquidity requirements set by the Reserve Bank of India.
Ergo, even though only 29% of the sample consists of banks, they account for 94% of the BFSI sector’s non-core revenue in the fourth quarter. The insurance business is primarily used for long-term bonds required by its asset liability management, contributing 4%, while NBFC and others contribute the remaining 2% of the industry's total non-core total revenue.
Financial services like AMC rely primarily on expense-based revenue as part of its non-core earnings, which hit its lowest in eight quarters this fourth quarter, nearly 26% a year ago. However, their core revenue and adjusted net profit increased by 17% and 8%, respectively, to a high score of one in eighth during the same period.
Read more: Q4 Equity Action: Revised mid-market institutional demand growth
However, insurance companies are the biggest laggard. Analysis shows that they tend to report high non-core Treasury revenue every March quarter. But it has been falling continuously since February 24 and the last two March quarters of fiscal year 23, this time down about 28.5%. Their total revenue also fell 23%, while adjusted net profit increased by 9% from the fourth quarter.
This is the seventh part of a series of data stories about the ongoing fourth-quarter earnings season.
