Mounting bad loans cast a shadow on financial performance of state-owned banks with country's largest lender SBI reporting sharp decline in net profit and another major lender Bank of India posting losses for the third quarter of current fiscal.
Several other large PSU banks like Punjab National Bank and Union Bank of India has posted substantial dip in their net profits.
SBI reported a massive 67 per cent fall in consolidated net profit at Rs 1,259.49 crore in the quarter to December after it classified loans worth Rs 20,692 crore as having turned bad.
On a standalone basis, the bank's net profit dropped a massive 61.67 per cent to Rs 1,115 crore from Rs 2,910 crore due to increase in bad loans and the resultant higher provisioning.
SBI also warned of more pains in the March quarter to meet the Reserve Bank diktat to clean the books by the end of the fiscal year as the bank has only provided for about half of the accounts that are stressful.
Commenting on poor showing of the banks Reserve Bank Governor Raghuram Rajan today assured that there won't be a repeat of the asset quality review (AQR) that has shaved off banks' bottomlines and the resultant battering of banking stocks and the massive erosion of investor wealth.
"We do not envisage a sequence of the AQRs," Rajan said.
Using a medical jargon to impress the need for such a review, Rajan said a "deep surgery" is needed to clean up and the process of recognising the NPA is akin to an "anaesthetic" needed for the procedure.
Acknowledging that the AQR, under which the RBI has asked banks to recognise some top defaulting accounts as non-performing ones and provide for them, has had a debilitating impact on banks' numbers and their stocks, Rajan admitted that the earnings of state-run banks do not look "pretty".
Speaking on the issue of bad loans, Minister of State for Finance Jayant Sinha said "I will tell all investors that this is good news not bad news because, effectively what it means is that we have got the NPA problem well in hand. We know the stock of stressed assets is about Rs 8 lakh crore."
That number has stabilised and RBI and the government are now going through the process within that stock of stressed assets of Rs 8 lakh crore to figure out exactly what the NPA should be, Sinha said.
Another major PSU lender Bank of India reported a net loss of Rs 1,505.58 crore in the third quarter as against net profit of Rs 1,733.80 crore on account of higher provisioning for bad loans.
