Banks have set aside Rs 2.35 lakh crore as provisions between April 2013 and December 2015, which is approximately seven times the amount of capital infused by the government into 21 public sector banks over the same period.
Since the financial year ending March 2014, the government has infused Rs 35,547 crore of equity into 21 public sector banks, including State Bank of India (SBI), Bank of Baroda (BoB) and Punjab National Bank (PNB). However, over the same period, these banks have provided over Rs 2.35 lakh crore for bad and doubtful loans.
SBI, the country’s largest lender, received Rs 4,970 crore of capital from the government over FY14, FY15 and the first nine months of FY16. Its provisions, at Rs 52,468 crore, was more than 10 times the amount.
The other state-owned majors PNB and BoB are not far behind. PNB received R3,102 crore of capital in the period under review and provided R22,160 crore over the same period. BoB received R3,596 crore and provided R16,944 crore.
Of all the major state-owned lenders, IDBI Bank has the least disparity between the two figures, having received R4,029 crore and provided R14,272 crore.
In the December quarter alone, the same 21 banks set aside R34,005 crore, marginally short of the total capital infused by the government over the last three financial years. Banks across the sector reported a surge in non-performing assets (NPAs) and provisions as result of the Reserve Bank of India’s asset quality review.
Moreover, profitability of state-owned banks has weakened over the last nine months. “Operating performance also deteriorated for the corporate lenders, in particular the PSUs. Most have been unable to grow their loan books in the past nine months and with NIMs under pressure, pre-provision profitability has weakened further,” Credit Suisse said in a report.
The brokerage added by FY19, capital requirements of public sector banks would be anything between $34 billion–$53 billion, depending on the extent of the cleaning up exercise.
“With the increasing provisioning needs and weakening profit & loss account, recapitalisation needs for the PSUs have increased further and we now estimate they are likely to need $34–$53 billion of capital,” Credit Suisse said.
Currently, all major state-owned banks barring PNB, UCO Bank, Canara Bank, BoB and SBI have tier-I capital of less than 8.5%.