Record Profits for Indian Banks: ₹3 Lakh Crore in FY24

With net earnings surpassing ₹3 lakh crore for the first time in FY24, the Indian banking industry accomplished a noteworthy milestone. This represents a 39% YoY increase, indicating a significant improvement in the financial health of the sector. Here’s a closer look at the salient points and revelations:

Outstanding Results from Private and Public Sector Banks

• Private Banks: A total of ₹1.78 lakh crore in net profit was reported by the 26 listed private sector banks.
• Public Sector Banks (PSU)**: A net profit of ₹1.41 lakh crore was declared by the 12 listed PSU banks.

Growth-Promoting Factors

• Healthy Loan Growth: The fourth quarter of FY24 saw robust loan growth at banks, which helped to enhance total earnings.
• Increase in Other Income: Growing income from sources other than interest was also very important.
• Net Interest Margins (NIM): The industry was able to keep strong margins in spite of divergent trends brought on by growing funding costs.

The Prime Minister’s Acclaim

This accomplishment was recognized by Prime Minister Narendra Modi, who described it as a “remarkable turnaround.” He outlined the evolution of the industry during the previous ten years, from losses and a high level of non-performing assets (NPAs) to profitability. PM Modi stressed that the poor, farmers, and Micro, Small, and Medium-Sized Enterprises (MSMEs) would have easier access to financing as a result of this change.

Prospective Forecasts and Industry Agreement

With a focus on state-run lenders, market experts have raised their net profit projections for FY25 and are projecting mid-single digit growth. Private banks are anticipated to keep consistent profit margins, nevertheless.

Core Pre-Provisions Operating Profit (PPOP)

In Q4FY24, banks reported a 9% YoY increase in core PPOP and a 21% YoY increase in Profit After Tax (PAT). These figures illustrate the trends in loans and deposits.

• Lending-to-Deposit Ratio (LDR): Due to their poor pricing power, banks with high LDRs lost lending market share and decreased corporate loans.
• Deposit Market Share: In FY24, PSU banks lost 20–50 basis points (bps) to private banks in the deposit market share category. This decline was partially caused by private banks’ expansion into rural and suburban areas.

The competitive landscape and challenges faced by Deposit Competition** Term deposit (TD) rates have increased by 10–50 basis points due to intense competition. In addition, banks are raising money via issuing bonds, certificates of deposit (CDs), and equities.

Outlook for Net Interest Margins (NIM): For some banks, NIMs are predicted to drop by 5–17 basis points in FY25, assuming no rate reductions. Axis Bank, HDFC Bank, and Bank of Baroda may have less NIM compression, whilst ICICI Bank, Kotak Mahindra Bank, and State Bank of India (SBI) may witness greater compression. Expected banks include RBL Bank, Federal Bank, and Industrial Bank.

Asset Quality and Credit Costs 

• Credit Costs: Despite a minor rise in slippages in the MSME, MFI, and agricultural sectors, overall credit costs are still low.
• Earnings Revisions: PSU banks reported positive revisions to their earnings; however, the favorable cyclical conditions may fade in a few quarters.

IIFL Securities’ Top Banking Selections

The following banks are among IIFL Securities’ top picks in the industry:

• Axis Bank: Purchase with ₹1,290 as your goal price.
• HDFC Bank: Purchase with a ₹1,760 goal price.
• IndusInd Bank: Purchase with ₹1,680 as your goal price.
• Bank of Baroda: Purchase with ₹300 as your goal price.

Final Thoughts
The exceptional net profit recorded by the Indian banking industry in FY24 is indicative of a noteworthy recovery and a promising future. Despite ongoing difficulties, the industry is well-positioned to boost economic expansion and enhance credit availability for a range of market sectors.

Disclaimer: Individual analysts or brokerage firms may have opinions and suggestions that differ from those above. Before making any financial decisions, investors are recommended to speak with licensed professionals.