Two banks — HDFC Bank and SBI — contributed half of the industry’s profits. Of the total profits, HDFC Bank at Rs 31,116 crore accounted for 30%, an 18% increase over the previous year.
The country’s largest lender SBI accounted for another 20% at Rs 20,410 crore. The third-highest was ICICI Bank, which earned Rs 16,192 crore, more than double what it earned in the previous year. Private banks also gained market share as public sector banks (PSBs) went slow in lending.
The biggest turnaround was among PSBs which reported a collective net profit for the first time in five years. Only two of the 12 PSU banks — Punjab & Sind Bank and Central Bank of India — reported a net loss for the year.
In the private sector, Yes Bank remained in the red with a net loss of Rs 3,462 crore as it continued to make provisions. However, for banks in the red, the losses were lesser than what they reported in the previous year.
The single biggest reason for PSBs to post such a Rs 57,832-crore turnaround — from a loss of Rs 26,015 crore in FY20 to a combined profit of Rs 31,817 crore — was the end of their legacy bad loan problem. This burden reached a peak after the RBI forced banks to classify 12 large defaulting accounts, followed by another 40 accounts, as non-performing assets and initiate bankruptcy proceedings.
Given the size of these exposures, the move resulted in loans worth Rs 4 lakh crore turning bad. By March 2020, banks had completed making provisions for most of these loans. Additional provisions were offset by large recoveries from earlier written-off accounts, and banks stopped bleeding.
According to rating agency ICRA, the profits for the current year were the windfall gains on bond portfolios of public banks account, which contributed two-thirds of their profits before tax in FY21.
The rating agency added that barring SBI, profit from the sale of bonds exceeded the pre-tax profits of all other public banks. The profit from bond sales was higher than the Rs 20,000-crore capital infused by the government in FY21.
The value of government bonds rises when interest rates fall. The RBI’s aggressive move to keep rates low has reduced interest income but provided huge gains in treasury income. The year 2020-21 was also a year of consolidation for the 10 public sector banks that merged into four.
Last year, the merging entities recorded huge losses in the fourth quarter before the merger, which contributed to the Rs 26,015-crore loss among PSU banks in FY20. This year, the acquiring banks made profits with Indian Bank topping the list at Rs 3,004 crore followed by Union Bank at Rs 2,905 crore.
The impact of the pandemic is not yet reflected in the balance sheets of the banks as lenders have been allowed to restructure loans of defaulters.
In the second wave, the RBI allowed banks to give stressed borrowers one more year to repay. Given that large corporate accounts are not affected, banks do not expect defaults on account of the pandemic to trigger losses in future.