Aggregate profits of 15 private sector banks have outstripped the combined profits of 25 public sector banks in Q1FY16, Capitaline data shows.
The total profits of public sector banks (PSBs) have fallen 21% year-on-year (y-o-y) to Rs 9,449 crore, owing to higher provisions and tepid growth in operating profits. Private lenders have, on the other hand, reported a total profit after tax (standalone) of Rs 9,702 crore.
In the corresponding quarter of 2014, PSBs were ahead of private banks by Rs 3,176 crore but this time higher provisioning owing to the larger share of non-performing assets (NPAs)—89% of the banking system NPAs—has resulted in the gap narrowing significantly.
Total provisions made by private banks stood at Rs 4,169 crore while public sector lenders have had to set aside Rs 18,784 crore.
The operating profit of public sector banks rose 3% y-o-y to Rs 33,066 crore in Q1 and private banks reported combined operating profit of Rs 18,358 crore, up 21% y-o-y.
K Subrahmanyam, former executive director at Union Bank of India believes that with slowing down credit growth and increase in bad asset provisions, public sector banks are in a tight spot.
However, he feels that comparing PSBs with private banks is incorrect because private banks do not have as much infrastructure loans as PSBs do. “If you remove infrastructure exposure from our books, we will not be in such a bad shape,” he added.
For instance, Bank of Baroda (BoB) and Punjab National Bank (PNB) have both seen their net profits dip significantly in Q1 FY16 owing to higher provision towards bad loans. While BoB’s provisions stood at Rs 600 crore in Q1, an increase of 14% y-o-y, its gross NPAs were up 102 basis points (bps) at 4.13%.
Another large PSB, Bank of India (BoI) reported a 84% y-o-y drop in net profit in Q1.The general atmosphere remains adverse, Ranjan Dhawan, MD & CEO, Bank of Baroda (BoB) said recently. “This is what the corporates are telling us and are not coming for any major investments. So mainly growth is coming at the retail level and in the SMEs but certainly not coming in large corporate credit.”
During the quarter, BoI had to provide Rs 1,515 crore, an increase of 70% y-o-y; the management said. B P Sharma, MD & CEO said, “Our priority or our concern remains in the area of NPA front.” In the case of SBI, of the total provisions of Rs 4,000 crore in Q1, Rs 3,359 crore were for bad loans.