Bad loans of PSBs may rise to 5% by March 2014: Icra

State-owned banks may report 30-40% fall in net profit for FY14

Rating agency Icra on Thursday said the long spell of slowdown could further weaken the financial profiles of public sector banks by March-end 2014. Amid the high incidence of corporate defaults and stretched working capital cycles, the gross non-performing assets (NPAs) of state-owned banks may stand at 4.8-five per cent (of advances) by March-end, the agency said.

As of September-end, the gross NPAs of public sector banks stood at 4.5 per cent.

Vibha Batra, senior vice-pr-esident, Icra, said the capacity for provisioning for NPAs (credit provisions) would also be under pressure. For public sector banks, high levels of net NPAs (2.7 per cent) and fresh slippages (3.5-3.75 per cent) are likely to keep core profitability under pressure. At the same time, unamortised (not provided for) mark-to-market losses could prove to be another drag on overall profits in the second half of this financial year.

State-owned banks have a large bearing on the overall banking system’s NPAs and these could rise to 4.2-4.4 per cent by the end of March 2014 from four per cent as of September-end 2013.

  Profitability will be under se-vere strain, owing to lower net interest margins, lower fee-ba-sed income, higher credit provisions and depreciation on fixed income investments. Icra expects public sector banks’ pr-ofit after tax for 2013-14 will fall 30-40 per cent from 2012-13 levels. This is likely to translate into return on equity of six-eight per cent in 2013-14, against 9.7 per cent in the first half of this financial year. However, any increase in base rate by public sector banks might offset the pressure on their profitability to an extent, Icra said. In April-Se-ptember 2013, net interest margins (adjusted for credit provisions) for state-owned banks hit a 10-year low, impacting their core profitability significantly.