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Bank of Maharashtra’s Q3 Net Profit Surge, Is It Sustainable?
Bank of Maharashtra reports a remarkable 34% rise in FY 23 Q3 net profit, attributed to increased interest income and reduced NPAs. Experts question the sustainability, citing concerns about business volume-oriented profits.
Author: Saurav Kumar
Published: January 23, 2024
Bank of Maharashtra (BoM) showcased a formidable performance in the third quarter of FY 23, with a 34% surge in net profit, reaching Rs 1,036 crore. The noteworthy improvement was attributed to enhanced interest income and a reduction in non-performing assets (NPAs). This quarter's result signals positive momentum compared to the previous year’s Rs. 775 crore profit.
Stellar Financial Indicators
Despite increased provisioning, the profit uptick was driven by higher Net Interest Income (NII) and an improved net interest margin, reaching 3.95%. NII witnessed a substantial YoY growth of 24.56%, totaling Rs. 2,466 crore.
BoM’s Managing Director and CEO, AS Rajeev, highlighted significant milestones, with operating profit crossing Rs 2,000 crore, and net profit surpassing Rs 1,000 crore for the first time. Operating margin stood at an industry-leading 35%, while the net margin improved to 18%. Operating profit surged by 27.32% to Rs. 2,012 crore, and net revenue climbed by 20.05% to Rs. 2,620 crore.
The CEO expressed optimism about sustaining growth in the fourth quarter, underlining the decrease of Gross NPAs from 2.94% to 2.04%, and Net NPAs decline from 0.47% to 0.22% by December 31, 2023.
Is Bank of Maharashtra’s Success Sustainable?
A banking expert decodes the net profit jump of BoM and infers it to be a temporary phenomenon.
The expert, speaking on the condition of anonymity, commented, “BoM's results are impressive. During this quarter, one should look at the impact of the increase in certain risk-weighted assets to Capital Adequacy Ratio (CAR) and Common Equity Tier 1 (CET). BoM’s CAR is down by 0.8% even after recording a net profit of Rs. 1036 cr. for the quarter."
“The credit risk weighted assets increased by Rs. 7566 cr. though gross advances increased by Rs. 5548 cr. during the quarter. Current Account Saving Account (CASA) level is still lower than Mar 23 levels”, said the expert.
He also added that, “The profit BoM has achieved is the reversal of provision profit which means profit earned via NPA and write off recovery and is temporary in nature. But the profit through increase in business volume is the genuine profit and is yet to be met by the Bank of Maharashtra.”
Another banking expert, Viswanathan, reacting to BoM’s performance, noted, "The share of CASA to total deposits, which was at 57% in March 2022, has dropped considerably and is lower at 50.7% in Sep 23."
He further pointed out that BoM loans to unrated state government entities had gone up from Rs. 832 cr. in March 2020 to Rs. 19126 cr. now. The bank may scrutinise its exposure to government entities with weak credit profiles, despite government guarantees being available.
However, Bank of Maharashtra generating profit and the decline of NPAs indicate its good financial health, contradicting the overall arguments of merger of small banks.