PSU banks make profits, but not from lending

Corporate India may be reporting good profit numbers. But lending money didn’t make much for public sector banks as a group in the second quarter ended September 30. Their net interest income (or interest earned less interest expense) did not grow at all in this quarter. Yet profits grew 23 per cent for a set of 21 public sector banks for which the figures are available. It was liquidation of some of their equity investments, cashing in on the stock market boom, some recoveries of old bad debts, some treasury gains from the bond and forex markets and some other non-interest income that rescued public sector banks this quarter. Other income grew 45 per cent for these banks contributing almost the entire profits for this quarter. Comparatively, private banks did better. The profits of about 16 private banks grew 34 per cent riding on a robust 38 per cent growth in net interest income and a healthy 33 per cent growth in other income. All banks are hopeful of improving their net margins in the third quarter. This is the busy season for credit. So, one can expect a pick-up there. As for deposit costs, there are indications that a cut may be around the corner. Banks can then hope to make more money by just lending it.