August 17, 2009

By any yardstick, the June quarter earnings of listed Indian banks have been spectacular, but let me play Cassandra and say the dream run will not last long.The net profits of 41 listed banks in April-June have risen by 62% over the year-ago quarter, the highest in at least 12 quarters.

As a group, public sector banks have performed better than their counterparts in the private sector by registering 70% growth in net profits against 41% of private banks. One of the reasons behind this huge post-tax profit growth is lower provisions. Banks need to set aside a portion of their operating profits to provide for bad assets. In the June quarter, there was a 22.6% drop in provisions as banks’ bad loans have not grown much.