Several public sector banks saw a decline in net profit in the March 2014 quarter due to higher loan provisioning. However, Bank of Baroda (BoB) and Indian Overseas Bank (IOB), which recovered strongly, saw growth in net profit.
BoB reported a net profit of R1,153.7 crore, up 12.5% year-on-year (y-o-y). Punjab National Bank, the country’s second-largest public sector lender, however, saw its net profit decline 29% to R806 crore y-o-y while Canara Bank’s profit after tax dropped 16% y-o-y to R611 crore.
?The lack of visibility of any improvement in the loan portfolio has been our primary concern, leading to our negative rating of the bank,? Kotak Institutional Equities wrote in a report.
PSBs have, over the past several months, stepped up recovery efforts to improve their asset quality. For example, United Bank of India made cash recoveries worth R645 crore in Q4, up 125% sequentially, while IOB’s cash recoveries doubled sequentially and stood at R411 crore.
The asset quality of most nationalised banks improved sequentially and gross non-performing assets (NPAs) decreased, with the exception of PNB, where bad loans increased 13% y-o-y to R18,880 crore. Gross and net NPA ratios remained elevated at 5.3% and 2.85%, respectively. ?Post two quarters of positive surprise on asset quality, PNB surprised negatively in this quarter. In our view, volatility will continue till we see significant improvement on macros,? brokerage firm Motilal Oswal said.
BoB’s gross NPAs as a percentage of advances improved by 10 basis points (bps) to 2.9%. The bank’s net NPAs, which were 1.88% in December, came down to 1.52% in the March quarter.
?If the current trend on asset quality continues, our credit cost estimates could have a meaningful decline,? the brokerage observed.
HSBC remained cautious on Canara Bank’s asset quality saying, ?Loan book grew at 24% y-o-y, much above industry levels, but doubts over quality remain as it continues to be driven mainly by the SME (35% y-o-y) and power generation (41%y-o-y) segments. Asset quality continues to be a cause for concern, with slippages remaining elevated at 3% and credit costs increasing by 32 bps to 110 bps.? Canara Bank’s NII stood at R2,535 crore.
Most public sector banks have been slowing corporate lending and diversifying into retail credit.
?In Q3, we showed a profit of R62 crore and, in Q4, we have jumped to R162 crore. And with the steps the bank has taken, especially with the mobilisation of resources, the mitigation of risk and retail expansion, we should see the fruits of that this year,” said Rajeev Rishi, chairman and managing director, Central Bank of India.
