Public sector banks’ profits are expected to decline by 0.6% on a quarterly basis: Motilala Oswal

New Delhi: As the earnings season begins for the second quarter of FY25 public sector banks From a report prepared by Motilal Oswal.

The report estimates PSB’s profit after tax (PAT) to decline by 0.6 percent quarter-on-quarter, while showing stronger year-on-year (YoY) growth of 17.2 percent.

“We estimate that PSBs will be moderate increase in earnings by 17.2 percent year on year / decrease by 0.6 percent quarter to quarter in the second quarter of the fiscal year25,” we read in the report.

The slower growth rate can be attributed to a flat net interest margin (NIM) and a slight increase in loan loss provisions (LLP). The Net interest income (NII) for PSBs is expected to grow by around 6 per cent year-on-year, although interest margins are likely to remain under pressure.

Despite these short-term challenges, the report suggests that public sector banks are on track to achieve a compound annual growth rate (CAGR) of 15 per cent over the period 24-26, indicating sustainable long-term growth.

In the private sector banking space, the report forecasts mixed results for the same quarter. For covered private banks, pre-service operating profit (PPoP) is expected to grow by 12% year-on-year and 1% quarter-on-quarter.

However, PAT growth is expected to be more modest at 5% y/y and 0.6% quarterly.

“For our private banks, we estimate PPoP growth of 12 units year-on-year/1 unit quarter-on-quarter and PAT growth of 5 units year-on-year/0.6 units quarter-on-quarter in the second quarter of FY25” – we read in the report.

Going forward, private sector banks are expected to see a steady increase in profitability, with profits expected to grow at a CAGR of 12.4% over 24-26.

Overall, while both public and private sector banks may see moderate growth in the second quarter due to margin pressure and higher provisions, their long-term earnings prospects remain positive. (OR)