Early birds show PSBs to cringe in NPA pain

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Mumbai | Updated: July 29, 2015 4:55 AM

As Q1 results trickle in, asset quality issues seen chipping away bank's profits

The first set of bank results for April-June shows that the pain on asset quality could continue to chip away profits of public sector lenders. Profits of big PSBs like Punjab National Bank, Bank of India and Union Bank of India saw a double-digit drop from last year even as they continued to pile on bad assets.

Bank of India led the pack of dismal results by posting a whopping 83.9% fall in net profit for April-June and a 96% jump in net non-performing assets. The public sector lender had to increase its provisions by 25% to R1,574 crore, but its coverage ratio continued to be one of the lowest among peers at 41.3%.

Punjab National Bank, the third largest public sector lender by assets, saw its profits dip 49% y-o-y to R720.7 crore as it had to set aside R1,720 crore for bad assets. Net profit of Union Bank of India, too, fell from a year ago, but the bank was able to contain the increase in its NPAs.


Smaller PSBs, such as Indian Bank, Andhra Bank and Syndicate Bank, fared well on the bottom line, all reporting a rise in profit for the quarter.

Andhra Bank was the outlier with a impressive profit growth of 90% and a fall of 15.53% in bad assets. Its net NPAs as a percentage of total loans was 2.99%, lower than 3.89% a year ago. However, like all the other PSBs, Andhra Bank, too, saw a reduction in its provision coverage ratio to 61.33%.

NPAs have been rising sharply every quarter for PSBs for the last two years and the resultant provisioning has eaten away profits. Further, restructured assets have also been rising and the slippages from this portfolio has been around 10-15% for most PSBs.

Given that the Reserve Bank of India discontinued its forebearance on restructured assets from April onwards, PSBs refrained from restructuring accounts during April-June. For instance, Bank of India restructured loans worth only R92 crore while PNB restructured only R690 crore.

Amid the sustained pressure on asset quality, the corporate loan book of PSBs continued to suffer with the growth limited to single digit. However, Union Bank of India was the outlier here with an impressive 14% growth in its corporate loan book. Retail loan growth outstripped corporate loan growth for all PSBs.

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