Six banks see profits doubling in Q3. What should investors do?

Banks reported a strong set of numbers in the third quarter with robust margin expansion, healthy loan growth and asset quality improvement. An analysis of banks' earnings with market capitalisation of over Rs 1,000 crore shows that six lenders have doubled their profits in the quarter ended December 2022.

The profits of Karnataka Bank, Bank Of Maharashtra, Union Bank of India, UCO Bank, IDFC First Bank and Suryoday Small Finance Bank, rose up to 282%, according to data sourced from Ace Equity.

Among the top performing banks in the third quarter, Suryoday Small Finance Bank led the pack with profit rising 282% to Rs 18 crore in the December quarter as against just Rs 5 crore in the same period of last year.


Suryoday was followed by Bank of Maharashtra, which saw a profit growth of 139% year-on-year to Rs 775 crore for the third quarter ended December. The same was Rs 325 crore in the corresponding quarter of last year. Bank of Maharashtra's scrip surged 40% in the last one year period.


While IDFC First Bank reported a profit growth of 112% year-on-year, Union Bank of India and UCO Bank saw their profits rise by 110% each.

Meanwhile, Karnataka Bank recorded 105% year-on-year growth in net profit at Rs 301 crore for the reporting period as against Rs 146 crore in the same quarter of last year. The lender's stock is also an outperformer in the last one year period when compared with its peers, surging 127%.


What should investors do?
Analysts say banks reported a picture perfect quarter with improving margins, strong loan growth and benign credit costs.

Nuvama Institutional Equities said the same may not sustain as liabilities are now getting repriced higher – quicker than loans – and demand concerns have only broadened from exports to now consumption.

Emkay Global says even though the profitability of default remains considerably low, the recent correction in some fundamentally strong bank stocks provides a good entry point.

"We expect the probability of default to remain considerably low, for now. Add to that banks are witnessing strong earnings momentum on the back of better growth/margins and receding LLP which, coupled with the strong provisions/capital buffer, provide additional comfort. Thus, we believe that the recent correction in some fundamentally-strong bank-stocks provides a good re-entry point," the brokerage said.

"Banks with a higher CASA mix and floating loans are well positioned to navigate the rising rate environment, even as the funding cost is likely to increase. The asset quality outlook remained encouraging, with a moderation in slippages, healthy PCR, and contingent buffers driving benign trends in core credit costs. We marginally raise our FY23-25 earnings estimates for the sector by 2-3%," Motilal Oswal said.

(With data inputs from Ritesh presswala)

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