Tale of two sectors: How banks fared in the first quarter

Aug 15 2014, 02:01 IST
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SummaryInterest income rises, asset quality worsens

Except SBI, most PSBs see spike in NPAs

While the April-June period was good for public sector banks in terms of net interest income, asset quality issues plagued the sector, with most of them reporting a rise in non-performing assets (NPAs).

Bank of Baroda (BoB), for instance, reported a 17-bps rise in the gross NPA ratio (gross NPAs as a percentage of gross advances) on a sequential basis. In absolute terms, the lender’s gross NPAs stood at R12, 086.8 crore, up 23.8% y-o-y and 2% sequentially.

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Former BoB CMD SS Mundra attributed the spike in NPAs to seasonality. At a call with analysts, he had said: “On asset quality, the trend is consistent. In any quarter, one or two small accounts could get added and the figure might look different, but, essentially, the trend is the same of stability and improvement.”

In a note, JPMorgan said delinquencies have spiked sequentially (the management mentioned seasonality as a factor), though restructuring came off.

“The management targets an improvement in delinquency levels later in the year, but for restructuring to persist at the current levels for a few quarters; the overall asset stress is now more granular and visible in smaller accounts,” JPMorgan said. Punjab National Bank (PNB), too, reported a 23-bps rise in gross NPA ratio. The bank's gross NPAs rose from 5.25% in the March quarter to 5.48% in the quarter under review.

“There have been fresh slippages of Rs 2,960 crore, of which more than 57% came from standard restructured assets, and remains an area of concern,” brokerage Jefferies said in a note on PNB. However, India's largest bank, State Bank of India (SBI), had reasons to cheer as it managed to lower its gross NPA ratio by 5 bps to 4.95% and, in absolute terms, to R60,434 crore in Q1 from R61,605 crore in the March quarter.

With Reserve Bank of India guidelines on stressed asset management, most analysts believe that banks would have a challenging time managing bad assets. And with a majority of the bad loans originating from public sector banks, these lenders would be facing more asset quality pressures than their peers in the private sector.

Public sector banks, however, put a good show on the net interest income (NII) front, with most of them reporting double-digit NII growth. While Bank of Baroda's net interest income grew 15.2%, SBI saw a growth of 15.1% and Punjab National

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