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The earnings season that just ended proved to be another stellar one for big banks. The big five commercial banks saw the pretax profits swell by 21 percent year-on-year, on a cumulative basis. Dividends were back too, for most, as the Covid-induced restrictions went away. Unlike a number of other sectors, banking profits are not coming from a low base, as even during the peak pandemic last year – the big five had managed 50 percent year-on-year growth in after-tax profits.

More than the profitability aspect – it is the continuous expansion of the asset base that headlines the story. The earning yields have been understandably lower from last year same period, which reflects well in markup earned going down 19 percent year-on-year. The asset composition further tilted towards investments, which now make up for 72 percent of the deposits – up from 65 percent in the same period last year.

The banks have generally put it down to lack of genuine credit appetite, but there is clear strategy and wisdom behind the ever-increasing investment portfolio. The tenor management has been adjusted in accordance with the evolving interest rate dynamics, with relatively stable and risk-free yields. The investment base has grown by 17 percent over December 2020, accounting for most of the 13 percent asset growth during the period.

Not lending much and not worrying about it either must be a dream job, especially when you can still churn out good profits quarter after quarter. So, the total advances portfolio over December 2020 grew by a little over 4 percent, and the ADR dipped to 37 percent, down from 40 percent a year-ago and 46 percent, from two years ago. Call it complacency or genuine lack of credit demand – nobody is complaining.

The non-core income grew in double-digits, as increased economic and commercial activity returned, after the brief lull of the nationwide lockdown in the same period last year. The non-funded income streams have been well spread out, with fee, commission, gain on sale, dividend income all making sizeable contributions. Despite ongoing branch expansion and technology investment, big banks managed to take advantage of the scale and limit the administrative costs within single digits – leading to improved cost-to-income ratio versus the corresponding period last year.

Deposits growth has been rather steady without being extraordinary, but it has all been channeled in the low cost or non-remunerative deposits. The CASA ratio of the big 5 has been on a constant rise, from an already high base, which comes handy when things go tough. The economy is apparently back on track, and this should lead to higher demand for working capital credit lines and in some cases, even long-term loans. Banks have ample liquidity to entertain if such demand ever arrives. Not that anyone is actively looking for borrowers. They have not been doing bad without lending much anyway.

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