Asset quality pressure continued to plague the public sector banks (PSBs) in the September quarter, with most lenders reporting a rise in non-performing assets (NPAs) and a subsequent rise in provisions. For instance, Bank of Baroda (BoB) reported gross NPAs ratio of 5.56% in Q2 FY16, up 143 bps sequentially.
PS Jayakumar, MD & CEO, Bank of Baroda, said that PSBs are going through a tough phase owing to NPAs. He said nearly 60% of the bank’s corporate portfolio is where they have small shares in consortium lending and, clearly, this is not going to behave differently from the rest and it is for the balance 40% that it had direct control. “I would say this — we have at least two quarters that are going to be tough,” he said.
Out of BoB’s total provisions in the quarter of Rs 2,212 crore, provisions on account of slippages during the quarter were Rs 1,444 crore. Its total provisions rose 70% compared to the same period last year.
Another public sector lender Bank of India’s asset quality deteriorated with gross NPA ratio 7.55%, a q-o-q increase of 75 basis points. Owing to the rise in NPA and a subsequent rise in provisions in the quarter — which more than tripled to Rs 3,237 crore — it posted a loss of Rs 1,126 crore in Q2FY16.PSBs showed a mixed performance on the net interest margin (NIM) front. While most banks saw an improvement in their margins, a few like BoB and Union Bank saw a fall in NIM. For instance, BoI witnessed a 65-bps improvement in margins in the September quarter.
However, State Bank of India (SBI) and Punjab National Bank (PNB) managed to buck the trend. SBI’s bad loans fell in the quarter and its gross NPAs declined 14 bps q-o-q to 4.15% of gross advances. PNB’s gross NPA ratio fell 11 bps sequentially in Q2FY16 as its provisions fell 6% q-o-q.
SBI chairman Arundhati Bhattacharya was cautiously optimistic about a recovery in the economy and the end of the NPA cycle. “I think we are beginning to view the end of this entire NPA cycle and I am more confident about the quality of assets going forward. The project pipeline mainly comprised renewable projects and brownfield but today I can say that the road sector has now got added to the new projects list,” Bhattacharya said after the lender announced results for Q2FY16 last Friday.
Public sector lenders posted a tepid credit growth of 6% y-o-y in Q2FY16. The aggregate advances of 23 PSBs stood at Rs 51.37 lakh crore in the September quarter. Deposits of the 23 lenders rose 8% to Rs 69.43 lakh crore in the same period.
Bhattacharya said that its credit growth in FY16 would be 12-13%. “Today I still believe that we can grow at 14% and we are confident that we can grow at the levels that we have projected. However, to be very cautious, I’ll say something like 12-13% but we still will try to achieve the numbers we have said earlier,” she added. According to RBI data, non-food credit of banks for the fortnight ended October 30 grew 9.23% y-o-y to R67 lakh crore.
Union Bank chairman and managing director Arun Tiwari told reporters at its Q2 result meet that corporate leverage has come off at its peak and, going forward, as banks readjust their loan rates, closer to the market borrowing rates, it bodes well for new credit uptick.