In the first quarter of the 2023-24 fiscal year (Q1FY24), State Bank of India (SBI) achieved a notable milestone by surpassing Reliance Industries (RIL) in terms of quarterly net profit. SBI reported a quarterly net profit of Rs 18,537 crore, outpacing RIL’s quarterly net profit of Rs 16,011 crore.
This marks only the second instance in the past twenty years where SBI has reported a higher net profit on a trailing twelve-month (TTM) basis. The previous occurrence was during the July-September quarter of the 2011-12 fiscal year, when SBI’s TTM net profit of Rs 18,810 crore exceeded RIL’s consolidated net profit of Rs 18,588 crore.
Traditionally, RIL has contended with public sector oil and gas giants like Oil and Natural Gas Corporation (ONGC) and Indian Oil Corporation (IndianOil) for the title of India’s most profitable company.
RIL’s reign atop the profit league table was interrupted previously during the trailing twelve-month period ending in April-June of the 2012-13 fiscal year, when IndianOil claimed the lead. Prior to that, ONGC held the top position in the profit ranking until the October-December quarter of the FY12 fiscal year.
RIL’s displacement from the league table was driven by a substantial decline in its refining and petrochemicals (petchem) segments within its oil-to-chemicals business. This downturn was attributed to adverse price movements in global fuel and petchem markets following the Russia-Ukraine conflict. Consequently, RIL’s consolidated net profit experienced a 10.6 per cent year-on-year (YoY) decline to Rs 16,011 crore in Q1FY24, marking its weakest performance in eleven quarters.
In contrast, SBI continued its trajectory of impressive earnings with factors such as accelerated credit growth, an increased spread between loan and deposit interest rates, and the resolution of past non-performing assets. SBI’s net profit surged by 153.1 percent YoY in Q1FY24, building upon a lower base in the corresponding quarter of the previous fiscal year (2022-23).
SBI’s remarkable turnaround from previous losses until the Q1 of 2018-19 aligns with the expanding influence of the banking, financial services, insurance (BFSI), and stockbroking sectors within the Indian economy and corporate domain. Companies within the BFSI sector now contribute nearly 35 per cent of corporate profits, a significant rise from approximately 10 per cent prior to the pandemic.
Conversely, there has been a relative contraction in companies within the industrial and manufacturing sectors in recent years, resulting in lackluster revenue and profit growth. For instance, RIL’s oil refining and petchem division has witnessed largely stagnant annual profit before interest and tax over a four-year span.
RIL’s incremental earnings growth has predominantly stemmed from newer non-industrial endeavours such as retail and telecommunications services. However, these newer divisions tend to be less profitable compared to its established industrial ventures, exerting pressure on its overall earnings.
Interestingly, RIL’s consolidated net profit in Q1FY24 closely resembled its earnings from the October-December quarter of the 2020-21 fiscal year, despite growth in its new businesses during the intervening period.