Public sector lenders Bank of Baroda (BoB) and Punjab National Bank (PNB) saw their net profits halve in Q4FY15, mainly due to an increase in provisions towards bad loans. These are the first two large PSBs to report quarterly results and, while it would be premature to make conclusions, they might give a sense of how their peers would have performed during the period.
Bank of Baroda’s bad loan provisions stood at R1,491 crore in Q4FY15, a whopping 134% increase y-o-y. Gross NPAs were up 76 bps at 3.72% in the March quarter. The banks’ MD & CEO, Ranjan Dhawan, said on Monday that it was difficult to give an NPA outlook for FY16. “Some major corporates are in great difficulty. There was already a debate on whether a major corporate should be classified as an NPA or not. Hopefully, it will not happen in the next 1-2 quarters. But if that happens, we will be hit by several hundred crores from a single company,” he said.
According to Dhawan, while NPAs have occurred in every industry, a bulk of them have come from steel, textile and infra. He, however, added that the economic environment of the country was not good.
Owing to a rise in the provisions, net profit fell 48% y-o-y to R598 crore. Slippages in the quarter were up 5% y-o-y to R1,359 crore, but the bank saw a sequential fall in slippages. This caused its shares on the BSE to rise as much as 18.4% intraday before ending at R169.65, up 17%.
On other hand, Punjab National Bank added R15,692 crore of fresh loans to the NPA category in the March quarter. This compares with R9,865 crore of slippages in Q4FY14, an 59% rise y-o-y. Provisions towards bad loans were up 87% y-o-y to R3,281 crore in Q4FY15 and profit in Q4FY15 was down 62% y-o-y to R307 crore.
The bank’s management told analysts that they expect slippages to narrow. Gauri Shankar, executive director, PNB, said: “We have been saying there will be no further slippages, but there have been.”
He added that banks from both the public and private sectors were facing problems due to a weak economy. On sectors that contributed to higher restructuring and NPAs in Q4, Shankar said: “These sectors are infrastructure, power, road, ports and steel.”
A former public sector banker said that when banks report lower slippages in a quarter, the provisions could rise because some bad loans move from sub-standard category to doubtful, where provisions are higher. An account is classified as sub-standard if it remains an NPA for less than or equal to 12 months and requires 15% provisioning. It is classified as a doubtful asset after 12 months and, while the minimum provisioning requirement is 25%, the maximum is 100%.