 "Loan recoveries, upgrades improve for a few public sector banks")
India’s top six public sector banks (PSBs) in terms of asset size put up a mixed show on the loan recoveries and upgrades front in the June 2016 quarter (Q1). Recoveries of bad and doubtful debts and upgrades from bad/doubtful loans to standard loans reflect an improvement/uptick in asset quality of banks. But, unless there is sustained improvement in this metric, it may not heal the huge asset quality pain of banks. Most banks have stepped up their focus on ramping up loan recoveries. The numbers, though, indicate that only a few banks have managed to deliver positive results on this front.
Union Bank of India (Union Bank), Punjab National Bank (PNB) and State Bank of India (SBI), for instance, reported a sequential improvement in loan recoveries in the June quarter. This is the second quarter in a row that these banks have seen sequential improvement in recoveries. A sequential movement in recoveries is a better gauge to understand the trend in a quarter as against a yearly picture.
In Q1, Union Bank raced ahead of peers with a strong 72 per cent surge in recoveries over March’16 quarter (Q4'FY16), while PNB and SBI saw an uptick of 13 per cent and one per cent, respectively, in this metric. SBI and Bank of India also witnessed healthy sequential increase in loan upgrades in the quarter even as other banks witnessed a 15-26 per cent fall in the same. A loan upgrade from bad/doubtful status to standard asset is positive and indicates an improvement in the clients' ability to service the loan.
Interestingly, all these banks saw recoveries from written-off accounts decline anywhere between 36 per cent and 63 per cent, though on a small base (except for SBI and PNB). While an uptick in the same would have further aided asset quality, it also means that the improvement in recoveries for SBI, PNB and Union Bank is coming from improving health of existing borrowers and is probably more sustainable.
Does it mean the asset quality woes for these three banks are over? Not quite. This is because the actual amount of slippages (new bad loans) exceeded the combined recoveries and upgrades for all these banks, except Bank of Baroda (BoB). BoB was the only bank where the slippages came in a shade below recoveries and upgrades in Q1. For a sustained and meaningful improvement, this trend needs to continue. Positively, most managements are aiming to achieve this over the next two-three quarters.
For Q1, recoveries were down 25 per cent sequentially for Bank of Baroda, 20 per cent for Bank of India and 68 per cent for Canara Bank. Overall, while the asset quality stress for PSBs remains elevated, the focus on recoveries and slippages could provide some silver lining.