PSU banks may not be able to sustain Q2 performance

India's public sector banks may well be out of the woods, and fiercely competing with private sector peers, but analysts are not quite sure whether the improvement is sustainable.

Both large and small PSU banks put up a healthy performance in the three months to September, reporting strong profit numbers.

They enjoyed the arbitrage of a gradual rise in deposit rates, despite a rapid change in lending rates, at least for products linked to external benchmarks.

This propelled their yield while the cost of deposits moved only by a fraction.

For instance, State Bank of India reported a 74% rise in net profit in Q2 from a year ago.

Its asset quality improved and it is hopeful of disbursing 14-16% more loans in FY23 than it did in the previous fiscal year.

Bank of Baroda (BoB) posted 59% growth in net profit and 19% increase in domestic loans.

The government is also enthused by the September quarter results.

Finance minister Nirmala Sitharaman tweeted on Monday that continuous efforts of the government to reduce bad loans and strengthen the health of public sector banks are now showing tangible results.