Responsible for consecutive net losses are the spike in provisioning and contingencies which grew by 3.39% year-on-year in FY19.
A large number of public-sector banks, 14 out of 19, posted a consecutive losses in 2018-19 although their pre-provisioning operating profits (PPOP) were reasonably strong. The losses resulted from heavy provisioning requirements for stressed assets and eroded the bottomline. The 14 public-sector lenders, which included five banks, still within the promp corrective action framework, posted an aggregate loss of Rs 74,277.77 crore for FY19 against Rs 65,723.52 crore in FY18, based on figures available on the CapitaLine Database. This loss was in spite of the state-run entities posting a positive aggregate PPOP of Rs 63,645.05 crore for FY19 and Rs 62,371.47 crore for FY18.
Responsible for consecutive net losses are the spike in provisioning and contingencies which grew by 3.39% year-on-year in FY19. The 14 banks saw provisions grow to Rs 1,65,980.67 crore in FY19 against Rs 1,60,532.27 crore in FY18.
Bank of Maharastra’s losses for FY19 ballooned over 300% y-o-y, the largest among the 14 banks, on the back of a higher loan loss provisions on impared assets along with an increase in expenses due to wage revision provisions of Rs 109.80 crore. The bank’s provisions and contingencies for FY19 were up 34.26% over the previous fiscal year.
Some other banks which witnessed a significant rise in provisioning are United Bank where it rose 50.9% for FY19, IDBI Bank where provisions were up 31.1% and Punjab and Sind Bank which was higher at 29.7%.
However, it is worth noting that aggregate on-year provisioning across the 19 public sector lenders actually saw a 11.02% decline, suggesting banks could be witnessing an end to incremental slippages, with most impared assets already provided for. Some banks, including Central Bank of India, is optimistic about turning profitable going ahead.
The bank’s managing director and CEO Pallav Mohapatra told FE last month, “See the change in the direction — a lot of the financial parameters, starting from operating profit has shown an uptick; the net/ gross NPA percentage that has improved; the provision coverage ratio has strengthened, and making the balance sheet very strong. Even the cost to income ratio has improved quite a lot..It’s a cleaner book now. I would say cleaner than previous year’s book. Since the direction has changed, we are quite hopeful that going forward things are going to be better. I am looking at total year’s profitability, we are making all out efforts for the profit in the first quarter.”
Among 18 private banks, Lakshmi Vilas Bank posted a Rs 894.1 crore loss for FY19 over a Rs 584.87 crore loss for FY18. Meanwhile, IDFC First Bank posted a loss of Rs 1,907.88 crore against a FY18 profit of Rs 879.91 crore, largely on the back of an over 800% on-year growth in provisions.
Meanwhile, four state-run banks — State Bank of India, Bank of Baroda, Canara Bank, Oriental Bank of Commerce — alongwith private lender Dhanlaxmi Bank managed a turnaround in FY 19. The banks managed an aggregate profit of Rs 4,068.25 crore in FY19 against an aggregate loss of Rs 16,291.39 crore for FY18.
“Though the profit is modest, there is no looking back. I believe we finally have a complete control over the demon of NPA. From here on, this number will only be bigger and better. In my opinion, a pick-up in resolution of stressed accounts will help improve profitability for corporate lenders,” said SBI chairman Rajnish Kumar said this at the Q4FY19 post-earnings conference which marked the bank’s first profit after three quarters.
A study of aggregate profit/loss for state-run banks and private banks seperately, meanwhile, throws up a trend that suggests public sector banks have posted a smaller losses on-year even as private bank aggregate profits have improved.
The aggregate loss of the 19 PSBs stood at Rs 54,854.3 crore in FY19, against Rs 72,547.1 crore in the preceding financial year. Meanwhile, the 18 private lenders posted an aggregate profit of Rs 47,583.82 crore against Rs 45,947.31 crore in FY18.
“The outlook for corporate banks is improving, given moderation in slippages, a reduction in stressed loans and improving profitability. Revival in credit growth, along with improved pricing power, will help drive faster NII growth, while moderation in NPL formation will facilitate a gradual decline in provisioning expenses. Private Banks’ earnings estimates imply a CAGR of (approximately) ~39%, largely driven by Axis Bank and ICICI Bank,” Analysts at Motilal Oswal said on private-sector lenders.