Provisions made by a clutch of 17 public-sector banks (PSBs) in the quarter ended December 2017 almost doubled over the same quarter in the previous year to Rs 60,742 crore. Much of the jump came from banks provisioning against loans where the Reserve Bank of India’s (RBI) view on the status of the account differed from theirs. Provisioning against cases referred to the National Company Law Tribunal (NCLT) also took a toll.
Among large banks, the worst hit were State Bank of India (SBI) and Bank of India (BoI), both of which saw an over 110% year-on-year (y-o-y) rise in provisions.
SBI was dealt a further blow by hardening bond yields, which required the bank to provision for about Rs 3,500 crore against possible mark-to-market losses. After the bank’s results, SBI chairman Rajnish Kumar told reporters, “Treasury income also got impacted and there were no major sales of investments in this quarter.”
He added that from November 2017, wage negotiation with employees had become due and the bank has consciously decided to make a provision of about Rs 700 crore.
On the divergence front, the country’s largest lender had to set aside Rs 5,721 crore as provisions against gross non-performing assets (NPAs) worth Rs 23,239 crore identified by the central bank for FY17.
Kumar indicated that normalisation in provision levels may still be some time away. “Going forward, what is visible is that financial year 2019 onwards, the normalcy as far as the NPA or credit costs is concerned will return,” he said.
As for BoI, the divergence in gross NPAs was to the tune of Rs 14,057 crore in FY17, while the subsequent difference in provisions was Rs 4,350 crore. The bank said of the total gross NPAs, Rs 9,405 crore was from standby letters of credit issued by other banks for which BoI is not required to make any additional provisions in the quarter.
Union Bank of India, which saw provisions rising 95% y-o-y, attributed the jump to NCLT-related provisioning. Managing director and chief executive officer Rajkiran Rai told analysts that provisions on that count had been front-loaded.“The bank has front-loaded provision for NPAs being referred to NCLTs to Q3 FY18, rather than spreading it during the full half year of FY18,” he said.
As banks resort to the insolvency courts as the chief tool for resolution, provisions are likely to go up for the entire system in the quarters ahead.