Even as the Reserve Bank of India (RBI) attempts to protect banks’ balance sheets by asking them to set aside 75 basis points more by way of provisions for restructured standard assets, the quantum of such loans continues to rise. Asset quality at public sector banks deteriorated sharply in the three months to September, with banks reporting slippages way above estimates.
Punjab National Bank’s (PNB) exposure to sectors such as power continue to hurt; the bank’s gross non-performing assets (NPAs) jumped 40% sequentially to hit 4.66% of advances with the bank unable to to make too much headway on recoveries. The country’s second-largest lender restructured accounts worth Rs 2,770 crore. KR Kamath, CMD of PNB, blamed it on the state of the economy, saying “banks will not function in isolation” and that the general macroeconomic environment would be reflected in the bank’s performance.
Crisil estimates that the restructured assets of banks together with NPAs could cross 10% of advances by March next year; some banks have already hit that number.
Commentary from other bankers suggests the pain isn’t over yet and it could take a while for the NPA cycle to peak. N Seshadri, CMD of Bank of India (BoI) was candid in saying there was unlikely to be a tangible improvement in asset quality in the rest of the year. “You would have to be be naive to assume that there will be no further NPAs,” Seshadri said adding, however, that there may not be too much damage from here on. Bank of India’s (BoI) gross NPA ratio was 3.1% in the September quarter, up 33 basis points q-o-q, while it restructured around Rs 810 crore of loans.
“BoI has indicated that they are looking to restructure a few SEBs in coming quarters, implying asset quality will remain weak,” an HSBC note said.
Central Bank CMD MV Tanksale said he expects to restructure Rs 2,500-3,000 crore more of stressed assets in the second half of 2012-13. The bank saw slippages worth Rs 1,783 crore during the quarter, largely led by power, aviation and infrastructure sectors. Asset quality of Central Bank deteriorated with gross NPAs up 67 bps to 5.54% and the net NPAs up 58 bps to 3.8%.
The downturn in the economic cycle has hurt profits since banks are making higher provisions for toxic loans, according to former CMD of Bank of Baroda, MD Mallya. BoB’s provisioning for stressed assets rose 128.6%