Higher provisions on the back of deteriorating asset quality continue to hurt profitability of city-based public sector banks.
UCO Bank today said its net profit for the quarter ended December 31, 2012, declined 69 per cent from a year earlier, as it made more provisions due to an increase in bad loans. Its local rival, United Bank of India’s (UBI) profit after tax fell by 81 per cent year-on-year during the quarter because of similar reasons.
Only a week ago, another Kolkata-based lender, Allahabad Bank, reported a 44.5 per cent year-on-year drop in its third quarter net profit on account of higher provisions.
“If you look at our operating profit, it has shown an increase. Our performance has improved during the quarter. But, since provisions increased by 73 per cent, our profit declined,” Arun Kaul, chairman and managing director, told Business Standard over phone.
The bank made provisions of Rs 728 crore in the third quarter, compared to Rs 420 crore in the corresponding period of the previous year.
UBI’s earnings were more severely affected as it more than doubled its total provisions. The bank made provisions of Rs 450 crore in the last quarter, compared to Rs 199 crore a year ago. “The profit declined because of provisioning requirements and nothing else. Operating profit mirrors the bank’s health more accurately. Our operating profit increased during the quarter,” Sanjay Arya, executive director of UBI, said.
He added the bank had decided to make additional provisions during the quarter after it received the annual inspection report of the Reserve Bank of India (RBI). The central bank had directed UBI to make more provisions against certain loans where timely repayment was uncertain.
While UBI’s gross non-performing asset ratio deteriorated by 114 basis points to 4.42 per cent, UCO Bank’s gross bad loan ratio increased by 204 basis points to 5.53 per cent at the end of December 2012.
UBI and UCO Bank restructured Rs 300 crore and Rs 900 crore loans, respectively, during the quarter.
However, senior executives of both the banks were confident that the lenders would be able to improve their earning performance in the coming quarters. “We have made sufficient provisions. Our provision coverage ratio has improved to 67 per cent. We don’t believe there is any cause for concern,” Arya said.
A similar view was echoed by Kaul: “Things will definitely improve in future. We have stepped up our recovery efforts, and we are confident that our performance will be better in the coming quarters.”
