How Public Sector Banks Doubled Their Net Profit?

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What has happened?

Public sector banks (PSBS) have doubled their net profit during financial year 2021-22.
The collective profit of 12 state-owned banks during 2021-22 worked out to Rs 66,539 crore, an increase of 110% over Rs 31,816 crore in FY21.

All 12 state-owned banks reported a net profit for the first time in several years.
It was also a sharp turnaround from FY18, when only two out of 21 PSBS reported a profit.
In FY21, only two PSBS reported losses – Central Bank and Punjab & Sind Bank – which dragged down the collective net profit.
SBI’s net profit was the highest at Rs 31,675 crore – an increase of 55% over the previous year.
The country’s largest bank accounted for 47% of the total profits of the PSBS.
After SBI, Bank of Baroda, with a net profit of Rs 7,272 crore, generated 10% of PSBS’ profits, followed by Canara Bank, which at Rs 5,678 crore was at 8%.

Besides the two banks that turned around during the year, the highest revenue growth was reported by Bank of Baroda, followed by UCO Bank.

The higher profits have enabled PSBs to contribute more toward dividends, which will help the government,
Which has had to contend with lower receipts by way of dividends from the RBI.
The collective dividend of PSBS is over Rs 8,000 crore.

Profitability has improved on the back of completion of clean-up of bad loans and economies of scale after amalgamation of 10 state-owned banks.
Easy liquidity provided by the Reserve Bank of India (RBI) and growth segments like retail loans are some other reasons.

According to an analysis of key financial parameters of PSBS done by bank unions,
Bank of Maharashtra has shown the highest improvement in deposits & advances and is the only PSB to have net non-performing assets (NPAs) below 1%.
It has also recorded the highest growth in advances of 25%, driven by retail segment, which grew 23%.

Despite the record performance, PSBS continue to lag behind their private peers, which reported a net profit of over Rs 91,000 crore, 29% higher than previous year’s Rs 70,435 crore.
Private banks were led by HDFC Bank (Rs 36,961 crore), ICICI Bank (Rs 23,339 crore), Axis Bank (Rs 13,025 crore), Kotak Mahindra Bank (Rs 8,572 crore), IndusInd Bank (Rs 4,611 crore) and Federal Bank (Rs 1889 crore).

With Net Profits showing good improvement, PSBS can build up better risk appetite to lend to the industry at a faster pace to help the economy recover from the pandemic slowdown and debility arising from geopolitical risks.
Going forward, the spate of mergers will lead to further rationalisation of branch network with simultaneous thrust on digital banking.
Analysed from the tempo of growth built in during FY22, it is evident that PSBs will not only be competing with its private peers but will also be able to regain market share in coming years.

Q. Which of the following is correct regarding Commercial Paper?