Banking sector net profit crosses ₹3 lakh crore in FY24

Total net profit of listed public sector as well as private sector banks in FY24 jumped 39% (YoY) to cross ₹3 lakh crore for the first time.
Banking sector net profit crosses ₹3 lakh crore in FY24

In FY24, 26 private lenders recorded a net profit of ₹1.78 lakh crore, while 12 PSU banks reported a net profit of ₹1.41 lakh crore. Indian banks recorded decent earnings growth in the fourth quarter of FY24, aided by strong loan growth. While listed banks' net profit growth was boosted by increases in other revenue and credit growth, net interest margins exhibited contrasting trends, primarily due to growing funding costs. In FY24, listed public and private sector banks reported a 39% YoY increase in net profit, surpassing ₹3 lakh crore for the first time, according to Prime Minister Narendra Modi's statement. In FY24, 26 private lenders made a net profit of ₹1.78 lakh crore, while 12 PSU banks made a net profit of ₹1.41 lakh crore, according to a report. Prime Minister Narendra Modi has commended the remarkable improvement in the health of India's banking industry. PM Modi described it as a "remarkable turnaround" and stated that the development will help enhance loan availability to the poor, farmers, and MSMEs. India's banking sector net profit has reached ₹3 lakh crore for the first time in 10 years, a spectacular recovery. When we came to power, our banks were hurting from losses and significant NPAs as a result of the UPA's phone-banking strategy.

The impoverished were denied access to banks. This improvement in bank health will assist improve loan availability to our poor, farmers, and MSMEs," PM Modi wrote on May 20 in a post to X. Meanwhile, market consensus has raised FY25 net profit projections for state-run institutions by a mid-single digit, while private bank profits have remained relatively steady. In Q4FY24, banks reported a 9% improvement in core Pre-Provisions Operating Profit (PPOP) and a 21% increase in YoY PAT. Banks with high loan-to-deposit ratios (LDR) lost loan market share in FY24 and de-grew corporate loans in Q4 due to weak pricing power.

IIFL Securities forecasts system loan growth to decrease to 13% in fiscal year 25. With private banks making inroads into Sub-Urban & Rural (SURU) and government agency business decreasing, PSU banks lost 20-50 basis points of deposit market share in FY24. "Deposit competitiveness continues exacerbated by a 10-50 basis point increase in TD rates year-to-date, banks increasing funds through equity, CD, and bond issuances, and the drawdown of surplus liquidity buffer. Despite asset yield expansion, NIM outcomes were varied and are expected to remain so in FY25."

IIFL Securities reported. Assuming no rate reduction in FY25, the brokerage firm's residual re-pricing strategy predicts further spread declines of 5-17 basis points for select banks. ICICI Bank, Kotak Mahindra Bank, and State Bank of India (SBI) should have higher NIM compression, while Axis Bank, HDFC Bank, and Bank of Baroda should see lower compression and RBL Bank, Federal Bank, and IndusInd Bank should see an improvement. Slippages in agriculture, SMEs, and microfinance institutions increased, but total credit costs remained low. PSU banks saw positive earnings revisions, but the cyclical tailwinds (low LDRs, higher NIM trajectory, and cheap lending costs) likely fade in the next quarters, according to the report. IIFL Securities' top recommendations in the banking industry are Axis Bank, HDFC Bank, and IndusInd Bank for private banks, and Bank of Baroda for PSU banks.

Here are the IIFL Securities' recommendations on the best banking stocks: Axis Bank, HDFC Bank, IndusInd Bank, and Bank of Baroda all have buy targets of ₹1,290, ₹1,760, and ₹300, respectively. It is also advisable to get guidance from investors and consult with recognized specialists before making any investments.