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  1. Do we need more banks? The challenges are immense

Do we need more banks? The challenges are immense

Gross non performing assets (NPAs) for a clutch of nine public sector banks have increased by over R14,000 crore to over Rs 2 lakh crore in the three months to June. Their combined losses, however, have narrowed significantly compared with the March quarter.

By: | Mumbai | Published: August 11, 2016 6:46 AM

Gross non performing assets (NPAs) for a clutch of nine public sector banks have increased by over R14,000 crore to over R2 lakh crore in the three months to June. Their combined losses, however, have narrowed significantly compared with the March quarter.

In Q1FY17, the GNPAs of each of these nine lenders were higher than those for the quarter ended March — an indication that fresh slippages outpaced recoveries.

The combined loan book shrank by over R47,000 crore (q-o-q) during the quarter resulting in the total GNPAs, as a percentage of advances, stood at 11.58% at the end of Q1FY17.

The worst performance is that of the Chennai-headquartered Indian Overseas Bank (IOB), which saw an additional R3,864 crore worth of loans turning non-performing during the quarter, driving up the lender’s GNPA ratio to 20.48%. The 308 bps sequential jump in GNPAs was also partly the result of the bank’s loan book shrinking by over R7,000 crore during the quarter.
After the declaration of the June quarter results, the bank said in a note, “As the bank was in consolidation mode, credit growth was contained consciously in the back drop of low credit off-take.”

IOB’s net NPAs (NNPAs), as a share of advances, have now been over 10% for two consecutive quarters. According to Reserve Bank of India’s (RBI’s) prompt corrective action (PCA) framework, when a bank’s NNPAs are between 10% and 15%, it needs to, among other measures, take steps to reduce loan concentration and not enter new lines of business.

IOB, however, was not the only one among the nine PSBs to witness a shrinkage in its loan book in the June quarter. Except for Andhra Bank, each of the other eight saw their loan books shrink.. The largest among these nine — Punjab National Bank — in fact was the one that saw the biggest sequential shrinkage of over R20,000 crore or more than 5% of its loan book at the end of March.

The New Delhi-headquartered bank’s MD & CEO Usha Ananthasubramanian attributed its negative loan growth during the quarter to exercising of caution while lending to corporates. “I wouldn’t say that processing of loans was very easy earlier, but we have made it very stringent now. We are looking for highly-rated accounts like the AAAs and the AAs, but it does not mean we will shy away from B-rated accounts,”Ananthasubramanian said at media interaction.

With slippages not abating and the loan book shrinking, analysts at Jefferies are of the opinion that the normalisation of PNB’s return ratios are quite some time away. “While we think NPL recoveries may continue for another 2-3 quarters, lack of a downtrend of new NPL formation is a dampener,” they observed.

The other large PSB among these nine to be facing the twin headwinds is Union Bank of India, which saw its GNPAs rise by over R3,000 crore and loan book shrink by over R9,000 crore during the quarter ended June. Analysts at Axis Capital, who expect the bank to continue to set aside large sums for bad loans in the medium term, gave a thumbs down to its June quarter numbers terming it a ‘sub-par performance’ and ‘below already low expectations’.

Union Bank chairman & MD Arun Tiwari, however,remains optimistic and is of the opinion that the bank’s GNPAs might have peaked and normalisation should begin soon. “The GNPA numbers have peaked and we will see decline in numbers going ahead. We expect to exit this fiscal with GNPAs at 8.5-9%,” he said.

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