 "Asset quality problems mount for govt banks")
The December quarter was again a disappointing one for public sector banks (PSBs), with huge incremental slippages adversely affecting profitability and the capital position.
Barring State Bank of India (SBI), most PSBs reported a sharp rise in bad loans. SBI saw a marginal increase in non-performing assets (NPAs) on a sequential basis but compared to a year before, the level of both gross and net non-performing assets fell substantially.
According to data compiled by Capitaline, bad loans of Rs 24,000 crore were added to an already-heavy kitty of stressed assets, and PSBs’ share in it was a staggering Rs 21,466 crore.
The government banks were hoping to consolidate their books with a stable asset quality. That has been pushed to the early part of FY16, as this financial year’s last quarter (Q4) is expected to see banks continue their struggle with stressed assets. Banks are likely to see a spike in loan restructuring, as the window for getting regulatory leeway in terms of lower provisioning closes on March 31.
In the first nine months of the current financial year, gross NPAs worth Rs 51,252 crore were added. Thus, the portfolio of bad loans among listed banks was Rs 4.85 lakh-crore by the end of December 2014, according to Capitaline data.
V Batra, senior vice-president, financial sector ratings, at ICRA, said initial analysis indicated the flow of NPAs was higher than expected. There were significant slippages from the restructured loan book. This meant higher credit costs — provisions for fresh slippages and hardening NPAs — impacted profitability in the third quarter.
The sectors hit by slowdown and delays in payments have had a predominant share in bad loans. Infrastructure, construction, textile and iron & steel had higher contribution, bank executives said.
“PSBs are not out of the woods in asset quality. They are likely to face headwinds for at least two more quarters,” said Saday Sinha, analyst with Kotak Securities. Large PSBs — Bank of Baroda (BoB), Punjab National Bank, Bank of India and Canara Bank — saw a higher amount of slippage. Among mid-size lenders, Chennai-based Indian Overseas Bank reported a consecutive quarter of loss.
Vacuum at the top hit the recovery efforts of BoB, which had managed to keep asset quality in check till the second quarter. However, it wilted under pressure, with its portfolio of gross NPAs growing to 3.85 per cent at the end of December from 3.32 per cent in September-end. Fresh slippage jumped to Rs 3,000 crore from Rs 1,750 crore in the preceding quarter, while incremental restructuring was close to Rs 1,600 crore, compared to Rs 1,175 crore in the second quarter. Ranjan Dhawan, executive director of BoB, said the asset quality situation was worse than expected. The pressure would continue to be felt in the fourth quarter.
The bank continued to witness pressure on asset quality, as addition of stressed assets remained at elevated levels. Slippages were Rs 1,738 crore compared to Rs 1,968 crore in Q2. The provision coverage ratio (PCR) declined sequentially by 72 basis points to 57.3 per cent.
“Union Bank has been witnessing continued asset quality pressures for several quarters over the past few years, which has severely impacted its profitability,” Angel Broking said in a note to its clients.
Another large government lender, Bank of India, reported a rise in gross NPAs to 4.07 per cent in December from 3.54 per cent three months earlier. The PCR for NPAs was 56.62 per cent. In absolute terms, the addition was Rs 2,563 crore in three months. V R Iyer, chairperson and managing director, said banks continue to face stress and only a broad-based recovery in the economy could address the problem of bad loans.
Bank of India, whose domestic standard asset restructuring book is Rs 20,000 crore, has seen the power, aviation and textile sectors contributing the most.
Delhi-based Punjab National Bank faced a similar fate. Without a fulltime chief executive since the end of October, its gross NPAs grew to 5.95 per cent in December from 5.65 per cent in September.
Bengaluru-based Canara Bank, also without a fulltime chief executive for over four months, experienced higher pressure during the third quarter. P S Rawat, its executive director, said: “We expected asset quality to stabilise by the end of the third quarter but that did not happen.”
Reflecting a continuing stress scenario, its gross NPAs stood at 3.35 per cent at end-December, up from 2.92 per cent in September. SBI bucked the trend due to a cautious approach in loan disbursement. The small and medium enterprise sector, for example, which contributed a significant proportion of NPA last year, compelled SBI to adopt a ‘risk mitigated’ approach. “With respect to SMEs, we have consolidated and changed our entire product suite; all the products we have brought in are risk-mitigated ones. Frankly, I thought this was the right time to consolidate. So, we have held back and did not go out aggressively,” Arundhati Bhattacharya, chairman, said.
SBI was able to restrict fresh slippages to Rs 7,043 crore, while standard asset restructuring was Rs 4,092 crore. SBI said its strategy of lower appetite for risks amid a slowing economy and high interest rates would be reflected in future numbers. While banks will strengthen recovery efforts in Q4, they’re still wary of saying the trying times are behind them. Even SBI is cautious about the days ahead. Bhattacharya said: “I am loath to say the pain is over. Have to wait for a quarter or two.”
Rating agency ICRA has indicated the gross NPAs at system level would breach its earlier estimate of 4.2 per cent by March 2015. It could be around 4.3 per cent.
Barring State Bank of India (SBI), most PSBs reported a sharp rise in bad loans. SBI saw a marginal increase in non-performing assets (NPAs) on a sequential basis but compared to a year before, the level of both gross and net non-performing assets fell substantially.
According to data compiled by Capitaline, bad loans of Rs 24,000 crore were added to an already-heavy kitty of stressed assets, and PSBs’ share in it was a staggering Rs 21,466 crore.
The government banks were hoping to consolidate their books with a stable asset quality. That has been pushed to the early part of FY16, as this financial year’s last quarter (Q4) is expected to see banks continue their struggle with stressed assets. Banks are likely to see a spike in loan restructuring, as the window for getting regulatory leeway in terms of lower provisioning closes on March 31.
In the first nine months of the current financial year, gross NPAs worth Rs 51,252 crore were added. Thus, the portfolio of bad loans among listed banks was Rs 4.85 lakh-crore by the end of December 2014, according to Capitaline data.
V Batra, senior vice-president, financial sector ratings, at ICRA, said initial analysis indicated the flow of NPAs was higher than expected. There were significant slippages from the restructured loan book. This meant higher credit costs — provisions for fresh slippages and hardening NPAs — impacted profitability in the third quarter.
The sectors hit by slowdown and delays in payments have had a predominant share in bad loans. Infrastructure, construction, textile and iron & steel had higher contribution, bank executives said.
“PSBs are not out of the woods in asset quality. They are likely to face headwinds for at least two more quarters,” said Saday Sinha, analyst with Kotak Securities. Large PSBs — Bank of Baroda (BoB), Punjab National Bank, Bank of India and Canara Bank — saw a higher amount of slippage. Among mid-size lenders, Chennai-based Indian Overseas Bank reported a consecutive quarter of loss.
Vacuum at the top hit the recovery efforts of BoB, which had managed to keep asset quality in check till the second quarter. However, it wilted under pressure, with its portfolio of gross NPAs growing to 3.85 per cent at the end of December from 3.32 per cent in September-end. Fresh slippage jumped to Rs 3,000 crore from Rs 1,750 crore in the preceding quarter, while incremental restructuring was close to Rs 1,600 crore, compared to Rs 1,175 crore in the second quarter. Ranjan Dhawan, executive director of BoB, said the asset quality situation was worse than expected. The pressure would continue to be felt in the fourth quarter.
The bank continued to witness pressure on asset quality, as addition of stressed assets remained at elevated levels. Slippages were Rs 1,738 crore compared to Rs 1,968 crore in Q2. The provision coverage ratio (PCR) declined sequentially by 72 basis points to 57.3 per cent.
“Union Bank has been witnessing continued asset quality pressures for several quarters over the past few years, which has severely impacted its profitability,” Angel Broking said in a note to its clients.
Another large government lender, Bank of India, reported a rise in gross NPAs to 4.07 per cent in December from 3.54 per cent three months earlier. The PCR for NPAs was 56.62 per cent. In absolute terms, the addition was Rs 2,563 crore in three months. V R Iyer, chairperson and managing director, said banks continue to face stress and only a broad-based recovery in the economy could address the problem of bad loans.
Bank of India, whose domestic standard asset restructuring book is Rs 20,000 crore, has seen the power, aviation and textile sectors contributing the most.
Delhi-based Punjab National Bank faced a similar fate. Without a fulltime chief executive since the end of October, its gross NPAs grew to 5.95 per cent in December from 5.65 per cent in September.
Bengaluru-based Canara Bank, also without a fulltime chief executive for over four months, experienced higher pressure during the third quarter. P S Rawat, its executive director, said: “We expected asset quality to stabilise by the end of the third quarter but that did not happen.”
Reflecting a continuing stress scenario, its gross NPAs stood at 3.35 per cent at end-December, up from 2.92 per cent in September. SBI bucked the trend due to a cautious approach in loan disbursement. The small and medium enterprise sector, for example, which contributed a significant proportion of NPA last year, compelled SBI to adopt a ‘risk mitigated’ approach. “With respect to SMEs, we have consolidated and changed our entire product suite; all the products we have brought in are risk-mitigated ones. Frankly, I thought this was the right time to consolidate. So, we have held back and did not go out aggressively,” Arundhati Bhattacharya, chairman, said.
SBI was able to restrict fresh slippages to Rs 7,043 crore, while standard asset restructuring was Rs 4,092 crore. SBI said its strategy of lower appetite for risks amid a slowing economy and high interest rates would be reflected in future numbers. While banks will strengthen recovery efforts in Q4, they’re still wary of saying the trying times are behind them. Even SBI is cautious about the days ahead. Bhattacharya said: “I am loath to say the pain is over. Have to wait for a quarter or two.”
Rating agency ICRA has indicated the gross NPAs at system level would breach its earlier estimate of 4.2 per cent by March 2015. It could be around 4.3 per cent.