While the April-June period was good for public sector banks in terms of net interest income, asset quality issues plagued the sector, with most of them reporting a rise in non-performing assets (NPAs).
Bank of Baroda (BoB), for instance, reported a 17-bps rise in the gross NPA ratio (gross NPAs as a percentage of gross advances) on a sequential basis. In absolute terms, the lenders gross NPAs stood at R12, 086.8 crore, up 23.8% y-o-y and 2% sequentially.
Former BoB CMD SS Mundra attributed the spike in NPAs to seasonality. At a call with analysts, he had said: On asset quality, the trend is consistent. In any quarter, one or two small accounts could get added and the figure might look different, but, essentially, the trend is the same of stability and improvement.
In a note, JPMorgan said delinquencies have spiked sequentially (the management mentioned seasonality as a factor), though restructuring came off.
The management targets an improvement in delinquency levels later in the year, but for restructuring to persist at the current levels for a few quarters; the overall asset stress is now more granular and visible in smaller accounts, JPMorgan said. Punjab National Bank (PNB), too, reported a 23-bps rise in gross NPA ratio. The bank's gross NPAs rose from 5.25% in the March quarter to 5.48% in the quarter under review.
There have been fresh slippages of Rs 2,960 crore, of which more than 57% came from standard restructured assets, and remains an area of concern, brokerage Jefferies said in a note on PNB. However, India's largest bank, State Bank of India (SBI), had reasons to cheer as it managed to lower its gross NPA ratio by 5 bps to 4.95% and, in absolute terms, to R60,434 crore in Q1 from R61,605 crore in the March quarter.
With Reserve Bank of India guidelines on stressed asset management, most analysts believe that banks would have a challenging time managing bad assets. And with a majority of the bad loans originating from public sector banks, these lenders would be facing more asset quality pressures than their peers in the private sector.
Public sector banks, however, put a good show on the net interest income (NII) front, with most of them reporting double-digit NII growth. While Bank of Baroda's net interest income grew 15.2%, SBI saw a growth of 15.1% and Punjab National Banks 12% from the same period last year. Mid-sized PSBs like Central Bank and Canara Bank saw 18% and 22% NII growth, respectively.
With regards to loan growth, most public sector lenders saw moderate growth in advances, driven by retail in some and corporate loans in other. In case of SBI, 34% loan growth was achieved in large corporates by lending to companies rated A and above at base rate to maintain credit quality.
Lending at the base rate and giving up the spreads was beneficial to banks as some of them earn more by way of fee income. VR Iyer, CMD, Bank of India, pointed out that by lending to navratnas at the base rate, the bank had managed to make more fees. Loan growth has been subdued over the past few months at just around 14% y-o-y.
Bank of India, too, saw a growth of 28.5% of their corporate credit portfolio, which formed more than half of the total domestic credit of the bank.
SBI chairperson Arundhati Bhattacharya believes that declogging of projects is visible, which has resulted in loan disbursements in the quarter. On credit growth over the entire year, we would like to stick to 15% that I had talked about. At this point of time, we don't see any clarity beyond that, she had said. For others like PNB and BoB, the double-digit credit growth was achieved by robust growth in retail loans.
ICICI bucks trend of falling non-interest income; focus on retail
Among private sector lenders, ICICI Bank managed to buck the trend of a falling non-interest income in the April-June period and, as a result, saw a healthy net profit growth of 17% y-o-y.
ICICI Banks other income grew 18% y-o-y to R2,850 crore, which was boosted by a combination of increase in fee income, treasury gains of R388 crore and R416-crore dividends received from its subsidiaries. On the other hand, rivals Axis Bank and HDFC Bank saw a degrowth of 5.07% and 3.90% in non-interest income, respectively. Somnath Sengupta, executive director, Axis Bank, attributed the slowdown in other income to lower growth in corporate credit. Fee income from loan processing, debt syndication and loan syndication has been much slower than usual, Sengupta said during a call with the media.
Paresh Sukthankar, deputy managing director, HDFC Bank, said other income fell due to lower bond gains as the benchmark bond yield has risen by about 100 bps since Q1FY14. Bond gains were much lower this quarter at R25 crore against R200 crore in the corresponding quarter last year. On the other hand, there were lower volumes on the forex side, Sukthankar said.
Private sector banks continued to focus on expanding their retail loan operations. However, HDFC Bank, a strong player in the retail space, surprised in the June quarter with a lower 6.98% growth in in its retail portfolio compared to 26% for ICICI Bank and a 28% growth in core retail advances at Axis Bank.
Slowdown in the retail segment, given the weak economy, and intensifying competition could affect loan growth for the bank in the medium term, investment bank JPMorgan said in a note on HDFC Bank.
Chanda Kochhar, MD & CEO of ICICI Bank, said the retail segment will grow in excess of 20% this year, but the lender will continue to adopt a calibrated approach to the corporate and SME portfolios. HDFC Bank and Kotak Mahindra Bank continued to degrow their commercial vehicle (CV) and construction equipment (CE) portfolios. At HDFC Bank, the CV/CE portfolio degrew 21% to R13,315 crore.
At KMB, the portfolio degrew 32% from the corresponding period last year to R5,104 crore.
Though the CV segment has stabilised, we are still not comfortable with growing it again at this moment, Dipak Gupta, joint managing director at Kotak Mahindra Bank, said.
Asset quality deteriorated marginally in larger private sector banks, but smaller banks, such as KMB, Indusind Bank and Federal Bank, managed to improve gross non-performing asset (NPAs) ratios.
However, Kochhar said the additions to NPAs in FY15 would be significantly lower than FY14.