Latest news with #AQR
Time of India
2 days ago
- Business
- Time of India
Once weighed down by bad loans, public sector banks drive India's banking profits to highest ever in history
Government-owned banks demonstrated remarkable growth with a 26% increase in profits to Rs 1.83 lakh crore. (AI image) Big turnaround story! Public sector banks led India's banking sector to record-breaking profits in FY25, with industry earnings rising nearly 14-fold over a decade to Rs 3.71 lakh crore, driven by lending income, treasury gains and reduced provisions for non-performing assets. Government-owned banks demonstrated remarkable growth with a 26% increase in profits to Rs 1.83 lakh crore, closing in on private banks, which recorded a modest 7% growth to Rs 1.87 lakh crore, according to an ET analysis. State Bank of India emerged as the most profitable bank with net earnings of Rs 70,900 crore, with HDFC Bank following at Rs 67,347 crore, and ICICI Bank achieving Rs 47,227 crore in FY25. The overall private sector bank profits were affected by significant declines in earnings at IndusInd Bank and IDFC First Bank. The remarkable financial performance follows the cleanup initiative that began in 2015 with the asset quality review (AQR) under former central bank governor Raghuram Rajan. This led PSU banks to record substantial losses over three successive years, with bad loans exceeding 8% of advances in FY16. Sharp Post-Covid Rebound To support PSU banks' growth, the government provided capital injection of Rs 3.15 lakh crore since the 2015 AQR, according to the recently published Economic Capital Framework report. Motilal Oswal Finance Services' banking report has said: "Banks are prioritising asset quality over growth, with stricter credit filters, higher CIBIL score thresholds, and conservative underwriting—especially in retail segments… PSU banks' disbursements remain modest while private players have gained share." In fiscal year 2016, commercial banks collectively posted a net profit of Rs 24,854 crore, primarily attributed to the strong performance of private sector banks. Lenders then initiated a comprehensive balance sheet restructuring, prompted by regulatory guidance and supported by updated insolvency legislation designed to swiftly recover substantial funds locked in debt-laden assets. "The key driver of the impressive rise in profits is the stable credit growth in FY25 on top of the good growth in FY24," said VK Vijayakumar, chief investment strategist, Geojit Investments. The aggregate net profit of all commercial banks stood at Rs 3.19 lakh crore in the previous year. "A major concern at the beginning of the year was deposits lagging credit growth. But as the year progressed, the deposit growth converged with credit growth," he added. The AQR implementation resulted in enhanced recognition of non-performing loans and increased provisions. The subsequent introduction of the Insolvency and Bankruptcy Code strengthened banks' recovery mechanisms and negotiating position with defaulters. According to IBBI statistics, creditors have recovered approximately Rs 3.9 lakh crore across 1,194 cases through March 2025. Regarding stressed assets, Subha Sri Narayanan, director, Crisil Ratings, says, "Gross non-performing assets (NPAs) have bottomed at 2.4% as of March 31, 2025, and are seen rangebound at 2.4-2.6% by March 2026. While corporate NPAs would remain low on strengthened risk management of banks, and robust balance sheets of corporates." Discussing FY26 net interest margin (NIM) prospects, Vishal Narnolia, analyst, ICICI Direct, noted, "In the first half, NIMs are expected to decline around 15 bps as there is a strong probability of policy rate cut which the banks will have pass to EBLR-linked borrowers." He indicated that deposit repricing in the second half should support margin recovery, with overall margins likely decreasing by approximately 10 bps in FY26. Most banks maintain NIMs—the gap between interest income and expense—between 3% and 4%. Vijayakumar of Geojit confirms the banking sector's positive outlook. He cautioned that "However, there are some concerns arising out of rising delinquencies in unsecured loans, credit cards and stress in the microfinance segment which can moderate profit growth in FY26.' Stay informed with the latest business news, updates on bank holidays and public holidays . AI Masterclass for Students. Upskill Young Ones Today!– Join Now
Time of India
3 days ago
- Business
- Time of India
Public sector banks drive record profits in India for FY25 amidst asset quality improvements
Public sector lenders were at the vanguard of driving FY25 banking profits in India to the highest ever in history, as earnings from lending, treasury gains, and lower bad-loan provisions saw the industry's combined bottom-line soar nearly 14 times in a decade to Rs 3.71 lakh crore. Last fiscal year, public sector banks — once weighed down by legacy stress and bad loans — reported a robust 26% rise in profits to `1.83 lakh crore, narrowing the gap with private banks, which saw a relatively circumspect 7% increase to Rs 1.87 lakh crore, data compiled by ET showed. Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Hanoi: Unsold Furniture Liquidation 2024 (Prices May Surprise You) Unsold Furniture | Search Ads Learn More Undo A research report by Motilal Oswal Finance Services on banking outlook said, 'Banks are prioritising asset quality over growth, with stricter credit filters, higher CIBIL score thresholds, and conservative underwriting—especially in retail segments… PSU banks' disbursements remain modest while private players have gained share. State Bank of India , the largest government asset by market capitalisation, posted the highest net profit of `70,900 crore, followed by private lender HDFC Bank— at Rs 67,347 crore. ICICI Bank 's net profit was Rs 47,227 crore in FY25. However, a sharp fall in earnings reported by IndusInd Bank and IDFC First Bank dented the overall profits of private sector banks. Live Events Although in FY16, the net profit of all commercial banks was Rs 24,854 crore it was mainly because of higher earnings contributed by private banks. Lenders subsequently embarked on a balance sheet clean-up, nudged by the regulator and aided by a revamped bankruptcy legislation that aimed at quickly extricating billions of dollars stuck in leveraged assets. 'The key driver of the impressive rise in profits is the stable credit growth in FY25 on top of the good growth in FY24,' said VK Vijayakumar, chief investment strategist, Geojit Investments. A year ago, the total net profit of all commercial banks was Rs 3.19 lakh crore. 'A major concern at the beginning of the year was deposits lagging credit growth. But as the year progressed, the deposit growth converged with credit growth,' he added. Asset quality The impressive earnings come in the backdrop of the clean-up that started in 2015 with asset quality review (AQR) under the then central bank governor Raghuram Rajan. That caused PSU banks to report huge losses for three consecutive years while bad loans scaled past 8% of advances in FY16. The government supported PSU banks with growth capital by infusing Rs 3.15 lakh crore since AQR in 2015, according to the Economic Capital Framework report released last week. The AQR exercise led to better income recognition of non-performing loans and higher provisions. In the following year, the enactment of Insolvency and Bankruptcy Code improved recovery for banks giving them an upper hand in negotiation with defaulters. Insolvency and Bankruptcy Board of India (IBBI) data shows that creditors have recovered nearly Rs 3.9 lakh crore in 1,194 cases until March 2025. Giving the outlook on stressed loans, Subha Sri Narayanan, director, Crisil Ratings, said 'Gross non-performing assets (NPAs) have bottomed at 2.4% as of March 31, 2025, and are seen rangebound at 2.4-2.6% by March 2026. While corporate NPAs would remain low on strengthened risk management of banks, and robust balance sheets of corporates.' In a net interest margin (NIM)—a key profit indicator—outlook for FY26, Vishal Narnolia, analyst, ICICI Direct, said, 'In the first half, NIMs are expected to decline around 15 bps as there is a strong probability of policy rate cut which the banks will have pass to EBLR-linked borrowers.' He said that in the second half of this fiscal, deposit repricing is expected to aid recovery in margins and overall margins are likely to decline by around 10 bps for FY26. For most banks, NIM—the difference between interest income earned and interest expense—is between 3% and 4%. According to Vijayakumar of Geojit, the outlook for the banking sector continues to be positive. 'However, there are some concerns arising out of rising delinquencies in unsecured loans, credit cards and stress in the microfinance segment which can moderate profit growth in FY26,' he said.
Economic Times
3 days ago
- Business
- Economic Times
Public sector banks drive record profits in India for FY25 amidst asset quality improvements
Public sector lenders were at the vanguard of driving FY25 banking profits in India to the highest ever in history, as earnings from lending, treasury gains, and lower bad-loan provisions saw the industry's combined bottom-line soar nearly 14 times in a decade to Rs 3.71 lakh fiscal year, public sector banks — once weighed down by legacy stress and bad loans — reported a robust 26% rise in profits to `1.83 lakh crore, narrowing the gap with private banks, which saw a relatively circumspect 7% increase to Rs 1.87 lakh crore, data compiled by ET showed. A research report by Motilal Oswal Finance Services on banking outlook said, 'Banks are prioritising asset quality over growth, with stricter credit filters, higher CIBIL score thresholds, and conservative underwriting—especially in retail segments… PSU banks' disbursements remain modest while private players have gained share. State Bank of India, the largest government asset by market capitalisation, posted the highest net profit of `70,900 crore, followed by private lender HDFC Bank— at Rs 67,347 crore. ICICI Bank's net profit was Rs 47,227 crore in FY25. However, a sharp fall in earnings reported by IndusInd Bank and IDFC First Bank dented the overall profits of private sector banks. Although in FY16, the net profit of all commercial banks was Rs 24,854 crore it was mainly because of higher earnings contributed by private banks. Lenders subsequently embarked on a balance sheet clean-up, nudged by the regulator and aided by a revamped bankruptcy legislation that aimed at quickly extricating billions of dollars stuck in leveraged assets. 'The key driver of the impressive rise in profits is the stable credit growth in FY25 on top of the good growth in FY24,' said VK Vijayakumar, chief investment strategist, Geojit Investments. A year ago, the total net profit of all commercial banks was Rs 3.19 lakh crore. 'A major concern at the beginning of the year was deposits lagging credit growth. But as the year progressed, the deposit growth converged with credit growth,' he quality The impressive earnings come in the backdrop of the clean-up that started in 2015 with asset quality review (AQR) under the then central bank governor Raghuram Rajan. That caused PSU banks to report huge losses for three consecutive years while bad loans scaled past 8% of advances in government supported PSU banks with growth capital by infusing Rs 3.15 lakh crore since AQR in 2015, according to the Economic Capital Framework report released last AQR exercise led to better income recognition of non-performing loans and higher provisions. In the following year, the enactment of Insolvency and Bankruptcy Code improved recovery for banks giving them an upper hand in negotiation with defaulters. Insolvency and Bankruptcy Board of India (IBBI) data shows that creditors have recovered nearly Rs 3.9 lakh crore in 1,194 cases until March 2025. Giving the outlook on stressed loans, Subha Sri Narayanan, director, Crisil Ratings, said 'Gross non-performing assets (NPAs) have bottomed at 2.4% as of March 31, 2025, and are seen rangebound at 2.4-2.6% by March 2026. While corporate NPAs would remain low on strengthened risk management of banks, and robust balance sheets of corporates.' In a net interest margin (NIM)—a key profit indicator—outlook for FY26, Vishal Narnolia, analyst, ICICI Direct, said, 'In the first half, NIMs are expected to decline around 15 bps as there is a strong probability of policy rate cut which the banks will have pass to EBLR-linked borrowers.' He said that in the second half of this fiscal, deposit repricing is expected to aid recovery in margins and overall margins are likely to decline by around 10 bps for FY26. For most banks, NIM—the difference between interest income earned and interest expense—is between 3% and 4%. According to Vijayakumar of Geojit, the outlook for the banking sector continues to be positive. 'However, there are some concerns arising out of rising delinquencies in unsecured loans, credit cards and stress in the microfinance segment which can moderate profit growth in FY26,' he said.
Forbes
24-05-2025
- Business
- Forbes
How To Use Gold And Other Hard Assets To Hedge Against Inflation
Budget deficits are going to be insane. Moody's belatedly admits that the U.S. Treasury is a questionable debtor. God knows what new surprises are coming from Washington. What about having a commodity as an inflation hedge? Gold is hot, oil is not. You could own a bullion fund (up 79% over the past three years), or you might feel safer diversifying your risks with a commodity futures fund. Such a fund holds derivatives tied to the prices of a basket of physical assets—crude oil, natural gas, precious metals, base metals, grains, livestock. This survey covers commodity funds, both those that own bars of precious metals and those that hold derivatives. Debate rages about whether commodities have any legitimate role for a long-term investor. Allan Roth, a financial advisor well known to Forbes readers, says commodity futures are a zero-sum game and therefore pointless. 'In the aggregate, not a penny has ever been made in the futures market before costs,' he opines in a recent essay. AQR, a big money manager and also a profilee here, has an ax to grind; it sells a commodity futures fund. Its view: 'The evidence supports commodities as a potentially attractive asset class in portfolios of stocks and bonds.' We will return to the debate about the desirability of owning contracts on crude oil, pigs and whatnot. But first, on the assumption that you have already decided to allocate some assets to the category, here is the roster of Best Buys. They are not particularly cheap in comparison to stock funds, but they are, in expense ratios, at the low end of what's available for hard assets. All but the one from Vanguard are exchange-traded. Are broad-based commodity portfolios a good investment? They have their moments of glory. They did wonderfully well during the rising inflation of the 1970s. They zoomed during the first two years of the pandemic. In the past three years the diversified commodity funds have disappointed, utterly failing to keep up with inflation, although the narrow subcategory of precious metals has done well. Allan Roth is correct that futures trading is a zero-sum game. If you are long December Pork Cutouts on the CME, someone else is short, and the combined profit and loss on the hogs is $0. But there are two reasons why investors who are on the long side of commodities could make money over time. One has to do with hoarding, the other with production risks. Hoarding explains the price of gold. Some of this stuff is used in jewelry and electronics, but the marginal buyer is stockpiling it to preserve wealth. Over the past century the price of gold has raced at a 2.2% average annual rate above inflation. Stocks did a lot better, but it has to be conceded that gold has preserved wealth. The other driver of commodity futures relates to production. Corn for September delivery is now trading at $4.37 a bushel. It could be that the best estimate of what its spot price will be in September is $4.47, and that a farmer is willing to sell now for less because his production cost is $3.50 and he wants to take no chance of losing money. The speculator on the long side of the future expects a dime of profit for taking on the price risk. Oil's price reflects both hoarding and hedging. Since it doesn't spoil if left in the ground, it's an asset to hoard. At the same time, producers need to cover their costs. If an offshore platform runs $1 billion, it might make sense for the company financing it to sell futures, even at a price below what's expected. Buyers, of course, also hedge, going the other way. This is a complicated market. How much juice do you get from commodities? Matthew Jiannino, a quantitative expert at Vanguard, says they have a tendency to move five to seven times as fast (in the opposite direction) as an average bond. That is, you could reasonably pair a $100,000 commodities position with a $500,000 bond portfolio. But he is quick to add that the relationship is not predictable. There are times when both bonds and commodities are sinking. So, should you own a commodity fund? To answer, I can offer only some speculative thoughts. (A) Commodities present an interesting but unreliable hedge against inflation. (B) They will generate a real return over the next century that will be positive but not as good as the return on stocks. (C) The returns on actively managed commodity futures portfolios will collectively be, before expenses, no better than the return on a commodity index, and after expenses worse. The funds on our Best Buy list are priced at 0.4% of assets annually or less. Most of them are managed passively. But even the vendors of index funds sometimes can't resist adding a little oomph. Thus, we have the iShares Bloomberg Roll Select Commodity Strategy fund, which tracks an index that contains the commodity contracts with the most favorable rolls. Rolling is the process of replacing an expiring contract with a later-dated one. Sometimes the new contract is priced lower than the old one, a phenomenon called backwardation. The reverse, typical for gold, is contango. In its prospectus for the fund, BlackRock informs us: 'The underlying Index seeks to employ a positive carry strategy that emphasizes commodities and futures contract months with the greatest degree of backwardation and lowest degree of contango, resulting in net gains through positive roll returns.' A question to ask: If this fund is buying only the good contracts, who's buying the bad ones? The fund, at any rate, is not a stellar performer. If you do put money into commodities, pay attention to expense ratios. Go beyond the cheapest only to get a specialty you really want (like industrial metals) or to get more liquidity. Note: The table is sortable on any column. One other admonition: Hold one of the diversified commodity funds on the table only in an IRA. They are all set up as K-1-free funds, which are deadly in a taxable account. Reason for this: One tax law says that the usual kind of investment company can't own commodity futures directly. So it holds them in an offshore holding company, often getting commodity exposure via derivatives sold by investment banks. Then another tax law comes into play. This one says that offshore holding companies are wicked and should be penalized. Here's how the punitive tax regime works: Gains on the derivatives are taxed as ordinary income, while losses can't be passed through to the investor and can't be carried forward by the fund. So you could be whipsawed, losing money one year, making it back to breakeven the next, yet have to pay income tax on an imaginary profit. If you had put $100,000 into the Vanguard Commodity Strategy Fund three years ago and reinvested all dividends, you'd now have $91,640. If you made the mistake of holding it in a taxable account, you would have had to declare $14,730 of ordinary income along the way. The Invesco DB Commodity Index Tracking Fund is organized differently, as a partnership (with a K-1 tax form). Losses from it can be carried forward, and profits are taxed as a mix of Treasury interest and long- and short-term capital gains. The Invesco partnership doesn't make the Best Buy list because it costs a nondeductible 0.87% annually. In Invesco's defense, it should be noted that this fee covers the salaries of traders who juggle the futures contracts, taking care not to overlook an expiration and have a carload of live cattle delivered to their offices. In a K-1-free fund, these trading costs are incorporated in the derivatives purchased from banks. Vanguard's latest financial filing says it was paying an annual 0.13% for help from banks, making the total cost of money management 0.29%. The gold funds aren't as bad as diversified K-1-free funds at tax time. When you sell, you pay capital gain tax at the 'collectibles' rate (a federal maximum of 31.8%, including the investment income tax). There's no whipsawing, there are no dividends to declare and there is the possibility that you will hold forever and get a step-up at death. Gold hoarding is comparatively cheap, as low as 0.1% annually.
Yahoo
18-05-2025
- Business
- Yahoo
Wall Street Banks Say Emerging Markets' Wasted Years Are Over
(Bloomberg) -- Wall Street's emerging-market faithful are finally seeing better returns after missing out for years as US stocks soared. As Coastline Erodes, One California City Considers 'Retreat Now' How a Highway Became San Francisco's Newest Park Maryland's Credit Rating Gets Downgraded as Governor Blames Trump America, 'Nation of Porches' Power-Hungry Data Centers Are Warming Homes in the Nordics Morgan Stanley Investment Management, AQR Capital Management, Bank of America Corp. and Franklin Templeton are among those betting the tables may finally be turning in favor of developing-market equities. Bank of America's Michael Hartnett calls them 'the next bull market.' AQR predicts they'll deliver local-currency returns of almost 6% annually in the coming five to 10 years, outpacing a 4% gain for US shares in dollars. Despite the S&P 500's rebound of recent weeks, the gauge was flat on the year as of Friday's close, while an emerging-market equivalent is up 10%. The gain is kindling hopes that a decade and a half of thwarted promise — in which the US benchmark rocketed more than 400% versus a meager 7% advance for developing-nation shares — could be at an end. Among the reasons: a struggling dollar, rollercoaster S&P and questions over the safe-haven status of Treasuries, all of which have investors increasingly looking away from the US as President Donald Trump's trade war takes off. Concerns about ballooning debt and deficits, which prompted Moody's Ratings on Friday to downgrade the US credit rating, add to the headwinds for continued US market outperformance. Some investors seeking alternatives to the US market have headed to the Japanese yen, German bunds and euro, but those willing to accept a bit more risk are rethinking the practice of yanking cash from emerging markets and pushing it into the US at moments of stress. 'The depreciation risk of the US dollar is a wake-up call for investors,' said Christy Tan, an investment strategist at Franklin Templeton, who touts developing-nation debt as an alternative to US Treasuries. 'We think the US exceptionalism is over for the time being.' The dollar's four-month slump through April means the local-currency gains cited by AQR get a boost when they're converted back into the greenback. MSCI Inc.'s benchmark emerging-market currency index hit a record at the start of May after gaining about 5% this year. 'Finally now we have the catalyst,' said Jitania Kandhari, deputy chief investment officer at Morgan Stanley Investment Management, who declared two years ago that the era of emerging markets had arrived as she switched from US to EM stocks. She's more confident this time round: based on historical averages, the dollar's weakening can contribute to one third of EM equity returns, she said. Having failed to match the US stock market in the past two years, her fund has returned 17% this year, beating 97% of peers, according to data compiled by Bloomberg. Debt Burdens Now Kandhari's digging deeper, looking for stocks in banking, electrification, health and defense that are exposed to local demand, and therefore less vulnerable to higher tariffs. At AQR, Managing Director Chris Doheny is turning his attention to emerging-market companies with a smaller capitalization that he predicts will perform well in the medium to long-term. Inflows to US-listed ETFs that invest across emerging markets, as well as those that target specific countries, totaled $1.84 billion in the week ended May 9, more than double the previous week's amount, according to data compiled by Bloomberg. To be sure, market reversals, political upheavals and local crises are a baked-in feature of the EM asset class, and the gains this year could yet stumble. Spotty earnings growth in some developing nations compared with those of the US and other developed markets in addition to transaction costs also give pause to some investors. 'On the one hand, emerging market GDP is growing faster than developed market, but the real issue is recurring earnings growth,' said Michael Bailey, director of research at Fulton Breakefield Broenniman. 'One long term example is China, where the economy is growing quickly, but many times Chinese companies issue so much stock that earnings growth disappoints, compared to the US and non-US developed,' he said. 'India is another compelling emerging market in theory, but it can be hard to access with high transaction costs, and long term returns have been similar to the S&P 500.' And so far, the shift from the US to emerging markets isn't showing up in broader capital flow data, while appetite for European assets is, according to Gabriela Santos, JPMorgan Asset Management's chief market strategist for the Americas. But if the dollar continues to weaken 'then that second step could spill over to emerging markets in a positive way,' she said. Compared with some of the larger emerging markets, the US looks constrained in terms of what it can do to bolster the economy as its outstanding debt rises toward $30 trillion. Countries including India and the Philippines already moved fast with aggressive rate cuts, while the Federal Reserve is wary of easing too aggressively in case it reignites inflation. 'The fundamentals of major emerging markets are robust, characterized by lower external debt and favorable debt-to-GDP ratios,' Franklin Templeton's Tan said, citing Turkey, Saudi Arabia, South Korea, and several Asian nations. 'This low debt profile is a significant draw, especially when compared to the US.' Key events to watch this week: Presidential elections in Romania and Poland Industrial production and retail sales data from China Consumer confidence and capacity utilization data from Turkey South Africa CPI and retail sales data HSBC PMI data from India --With assistance from Zijia Song and Matthew Griffin. Microsoft's CEO on How AI Will Remake Every Company, Including His Cartoon Network's Last Gasp DeepSeek's 'Tech Madman' Founder Is Threatening US Dominance in AI Race As Nuclear Power Makes a Comeback, South Korea Emerges a Winner Tariffs Won't Reindustrialize America. Here's What Will ©2025 Bloomberg L.P. Sign in to access your portfolio
