The sell-off in the shares of public sector banks (PSBs), on the back of higher provisioning due to the RBI’s asset quality review (AQR), has reached such a level that the market capitalisation of 17 of them is now lower than their net non performing assets (NNPAs).
At the top of this list, with NNPAs that are almost three and a half times of its market capitalisation, is Indian Overseas Bank – NNPAs of Rs 14,173.8 crore as of 31 December, 2015, as compared to a market capitalisation of Rs 4095.9 crore.
The other PSB that has NNPAs that are more than two times of its market capitalisation is Oriental Bank of Commerce — NNPAs of Rs 7,359.4 crore as compared to a market capitalisation of Rs 2,445.3 crore.
Similarly, there are five PSBs that have NNPAs more than twice their market capitalisation – Bank of India, UCO Bank, Allahabad Bank, Dena Bank and United Bank of India.
Just to highlight how these statistics compare with that of India’s top bank in terms of market capitalisation, HDFC Bank’s NNPA in Q3FY16 was just 0.5% of its market capitalisation!
The RBI’s intention behind the balance sheet clean-up drive by March 2017, which has led to such drastic drop in the market capitalisation and spurt in NPAs of PSBs, is to allow banks focus on loan growth without the fear of tackling legacy accounts.
But although it has led to a slump in the market capitalisation of several private sector banks as well, that in the case of PSBs has been historical.