A comparative analysis of the performances of top 10 private sector banks and top 20 public sector banks that have declared Q3FY16 results as of Friday reveals that while private sector lenders have seen their net profit rising by 14.2% (Y-o-Y) to Rs 10,972 crore, their state-owned peers have reported a net loss of Rs 3,317.2 crore, compared with a net profit of Rs 5,591.6 crore in the year-ago period, a swing of Rs 8,908.8 crore.
And at the heart of this debacle is a 72.5% (Y-o-Y) rise in provisions to Rs 27,841.1 crore. In fact, provisions made by these 20 public sector banks in the quarter is higher than their cumulative operating profit.
Such huge provisioning in a quarter in which their cumulative net interest income — the difference between interest earned and interest expended — increased by just 0.4% (Y-o-Y) to R38,192.7 crore means that seven out of these 20 — Bank of India, Central Bank of India, Oriental Bank of Commerce, Allahabad Bank, Syndicate Bank, Indian Overseas Bank and Dena Bank — reported net losses.
Leading the list of public sector banks’ surge in provisions, State Bank of India reported a 49.2% (Y-o-Y) rise to Rs 7949.4 crore and according to its chairman Arundhati Bhattacharya, their might not be much respite in Q4.
In a note to investors post the results, Kotak Institutional Equities noted, “Large rise in provisions were primarily on account of accelerated NPL recognition in certain large corporate loans. About 70% of slippages were a result of AQR.” However, post the results, Jefferies India,
which has cut the bank’s FY17 standalone estimates by 7%, in a note expected “normalised slippage ratios of 1.5-1.6% in FY17”.
While private sector banks also saw their provisions more than double (Y-o-Y), a 21.1% rise in net interest income and a 24.1% rise in other income more than offset it. Interestingly, just ICICI Bank’s provisions — a 190.3% (Y-o-Y) rise — accounted for more than half of the cumulative provisions of all the 10 private sector banks.
In fact, like SBI, ICICI Bank too might continue to be hurt by rising provisions even in the fourth quarter as NS Kannan, executive director, in a conference call, said, “About two-thirds of the NPA addition in the quarter relates to cases highlighted by RBI. Additional loans aggregating to a similar amount may slip into NPA in the fourth quarter from the cases highlighted by RBI. Based on the above, additions to NPAs in the fourth quarter may be broadly at
the same level as the third quarter.”