Chennai,  The impressive profits posted by public sector banks (PSBs) during Q2FY23 and H1FY23 and indications of good times ahead may not accelerate government divestment, experts contend.

On November 7, Finance Minister Nirmala Sitharaman said 12 PSBs registered handsome net profits during Q2FY23 and also H1FY23.

"The continuous efforts of our govt for reducing the NPAs & further strengthening the health of PSBs are now showing tangible results. All 12 PSBs declared net profit of Rs 25,685 cr in Q2FY23 & total Rs 40,991 cr in H1FY23, up by 50% & 31.6%, respectively (yoy)," Sitharaman said in a tweet.

Arbitrage between the lending and deposit rates, higher credit demand, and lower loan provisions resulted in PSBs posting handsome profits this fiscal, as per experts.

"We believe PSBs have reported strong profit in 2Q mainly due to meaningful improvement in credit growth, margins on the back of asset re-pricing and lower loan loss provisions as banks are well provisioned on the old NPAs, whereas new NPA formation has been lower due to better recovery trends," Anand Dama, Senior Research Analyst, Emkay Global Financial Services, told IANS.

"We believe PSBs will continue to benefit from better credit growth, margin uptick and lower loan loss provisions, but need to monitor the G-sec yield movement as it could hurt PSBs a bit on the treasury front and also impending bipartite wage negotiation," Dama said.

Will there be an accelerated move on the part of the government to go in for divestment? The government had earlier said it would privatise two of its banks.

"The good numbers may not trigger the government to go in for divestment. The government banks are big and there are not many who can afford them. Secondly, the regulations do not allow corporate groups to acquire banks," a sectoral analyst told IANS preferring
anonymity.

According to the analyst, first, the IDBI Bank divestment has to happen before any other bank can be considered for sale.

The government has invited expression of interest (EoI) for strategic disinvestment in IDBI Bank. As per plan, 60 per cent stakes held jointly by the Life Insurance Corporation of India and the Central government will be sold.

The LIC will cut its stake in IDBI Bank to 19 per cent from 49.2 per cent, while the government will cut its share to 15 per cent from 45.5 per cent at present.

According to the conditions of the EoI, private sector banks, non-banking finance companies (NBFCs), foreign banks and even alternative investment funds registered by the SEBI can bid for IDBI Bank.