Private sector banks’ profits set to leave PSU peers behind

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Mumbai | Published: May 28, 2015 1:53:00 AM

Profits of 13 private sector banks for FY15 could outstrip the combined profits of 25 public sector banks, probably for the first time in the country's banking history.

Bank of BarodaBank of Baroda (BoB) and Punjab National Bank (PNB) have both seen their net profits halve in Q4FY15 owing to higher provisioning towards bad loans. (PTI)

Profits of 13 private sector banks for FY15 could outstrip the combined profits of 25 public sector banks, probably for the first time in the country’s banking history. While the private lenders have reported a total profit after tax (standalone) of Rs 37,361 crore, their state-owned peers have managed to earn Rs 34,640 crore, data from Capitaline show. Bank of India (BoI) is yet to announce its numbers; consensus estimates of 40 analysts compiled by Bloomberg peg its net profit at Rs 2,374 crore, which is a shade lower than the gap between the public and private sector, of Rs 2,721 crore.

In FY14, public sector lenders had earned Rs 2,312 crore more than private banks but this time higher provisioning owing to the larger share of non-performing assets (NPAs) — 90% of the banking system NPAs — has resulted in the gap narrowing significantly. Total provisions made by private banks stood at Rs 10,852 crore while public sector lenders have had to set aside Rs 72,095 crore.

The gross NPA ratio — the percentage of loans that have gone bad — of PSBs stood at 5.47%, up 58 basis points (bps) while for private banks, it rose by 19 bps ratio to 2.01%. For instance, Bank of Baroda (BoB) and Punjab National Bank (PNB) have both seen their net profits halve in Q4FY15 owing to higher provisioning towards bad loans. While BoB’s bad loan provisions stood at Rs 1,491 crore in Q4 FY15, a huge 134% increase, its gross NPA was up 76 bps at 3.72%.

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The worst may not be over. Ranjan Dhawan, MD & CEO, BoB, said recently that it was difficult to give an NPA outlook for FY16. “There are major corporates in great difficulty and there is a debate on whether a major corporate should be classified as an NPA or not. Hopefully, it will not happen in the next one to two quarters but if it happens, we will be hit by several hundred crores from a single company itself,” Dhawan conceded.

During the year, PNB had to provide Rs 7,979 crore, an increase of 76%; the management said on an analysts’ call it expects recoveries to go up, resulting in the write-back of the provisions. Gauri Shankar, PNB executive director and MD CEO, said, “If the provisions are so much, the amount is so huge, let there be some recovery and you will see that we are going to write back the provisions. Ultimately P&L is going to get the benefit.” Shankar listed the affected sectors as infrastructure, power roads ports and steel.

Earlier this month, RBI deputy governor SS Mundra observed the level of distress was not uniform across the bank groups and was “more pronounced in respect of public sector banks”.

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A former public sector banker explained that even if banks were reporting lower slippages, the provisions could rise as some bad loans move from the substandard category to doubtful, attracting higher provisions. An account is classified as substandard if it remains an NPA for less than or equal to 12 months and requires 15% provisioning. It is classified as a doubtful asset after 12 months and the minimum provisioning requirement is 25% while the maximum is 100%.

In the case of State Bank of India (SBI), of the total provisions of Rs 25,812 crore in FY15, Rs 19,086 crore was for bad loans leading to a 21.6% rise in total provisions in FY15. Lenders have also said that as the economy did not pick up as expected, many companies were unable to service their debt, leaving no room for fresh credit demand. SBI chairman Arundhati Bhattacharya told analysts that with the slippage numbers still at 15%, “we are almost at the end of the difficult cycle and we are looking at growth”. She expects to grow SBI’s loan book by 14% in FY16 compared with 7.25% in FY15.

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Meanwhile, finance minister Arun Jaitley, according to agency reports, has recently said that NPAs of public sector banks would come down gradually over the next two to three quarters. “So we are not claiming that situation has completely reversed. We believe that the situation will gradually improve after two or three subsequent quarters. We are also bringing professionals into the banking system and appointing them as directors,” he was quoted saying.

During the year, PNB had to provide Rs 7,979 crore, an increase of 76%; the management said on an analysts’ call it expects recoveries to go up, resulting in the write-back of the provisions. Gauri Shankar, PNB executive director and MD CEO, said, “If the provisions are so much, the amount is so huge, let there be some recovery and you will see that we are going to write back the provisions. Ultimately P&L is going to get the benefit.” Shankar listed the affected sectors as infrastructure, power roads ports and steel.

Earlier this month, RBI deputy governor SS Mundra observed the level of distress was not uniform across the bank groups and was “more pronounced in respect of public sector banks”.

A former public sector banker explained that even if banks were reporting lower slippages, the provisions could rise as some bad loans move from the substandard category to doubtful, attracting higher provisions. An account is classified as substandard if it remains an NPA for less than or equal to 12 months and requires 15% provisioning. It is classified as a doubtful asset after 12 months and the minimum provisioning requirement is 25% while the maximum is 100%.

In the case of State Bank of India (SBI), of the total provisions of Rs 25,812 crore in FY15, Rs 19,086 crore was for bad loans leading to a 21.6% rise in total provisions in FY15. Lenders have also said that as the economy did not pick up as expected, many companies were unable to service their debt, leaving no room for fresh credit demand. SBI chairman Arundhati Bhattacharya told analysts that with the slippage numbers still at 15%, “we are almost at the end of the difficult cycle and we are looking at growth”. She expects to grow SBI’s loan book by 14% in FY16 compared with 7.25% in FY15.

Meanwhile, finance minister Arun Jaitley, according to agency reports, has recently said that NPAs of public sector banks would come down gradually over the next two to three quarters. “So we are not claiming that situation has completely reversed. We believe that the situation will gradually improve after two or three subsequent quarters. We are also bringing professionals into the banking system and appointing them as directors,” he was quoted saying.

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