Punjab National Banks (PNB) exposure to sectors such as power continue to hurt; the banks gross non-performing assets (NPAs) jumped 40% sequentially to hit 4.66% of advances with the bank unable to to make too much headway on recoveries. The countrys second-largest lender restructured accounts worth Rs 2,770 crore. KR Kamath, CMD of PNB, blamed it on the state of the economy, saying banks will not function in isolation and that the general macroeconomic environment would be reflected in the banks performance.
Crisil estimates that the restructured assets of banks together with NPAs could cross 10% of advances by March next year; some banks have already hit that number.
Commentary from other bankers suggests the pain isnt over yet and it could take a while for the NPA cycle to peak. N Seshadri, CMD of Bank of India (BoI) was candid in saying there was unlikely to be a tangible improvement in asset quality in the rest of the year. You would have to be be naive to assume that there will be no further NPAs, Seshadri said adding, however, that there may not be too much damage from here on. Bank of Indias (BoI) gross NPA ratio was 3.1% in the September quarter, up 33 basis points q-o-q, while it restructured around Rs 810 crore of loans.
BoI has indicated that they are looking to restructure a few SEBs in coming quarters, implying asset quality will remain weak, an HSBC note said.
Central Bank CMD MV Tanksale said he expects to restructure Rs 2,500-3,000 crore more of stressed assets in the second half of 2012-13. The bank saw slippages worth Rs 1,783 crore during the quarter, largely led by power, aviation and infrastructure sectors. Asset quality of Central Bank deteriorated with gross NPAs up 67 bps to 5.54% and the net NPAs up 58 bps to 3.8%.
The downturn in the economic cycle has hurt profits since banks are making higher provisions for toxic loans, according to former CMD of Bank of Baroda, MD Mallya. BoBs provisioning for stressed assets rose 128.6% to Rs 894 crore in the September quarter, with gross NPAs rising 12 bps sequentially to 1.98%. The bank also recast Rs 933 crore of loans, more than the Rs 770.57 crore recast in the three months to June.
Smaller banks like Indian Overseas Bank (IOB) and Central Bank too have seen their asset quality deteriorate; IOBs gross NPAs rose 90 bps to 3.87% at the end of September, while Central Bank of Indias gross NPAs jumped 67 bps to 5.54%. IOBs balance sheet will take another hit once it classifies its Rs 120 crore of exposure to Kingfisher Airlines as an NPA.