Public sector banks have taken this big step over loan crisis; numbers will surprise you

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Mumbai | Published: November 16, 2017 3:59:22 AM

Twenty listed state-owned banks together set aside more as provisions than what they earned as net interest income (NII) during the quarter ended September as lenders front-loaded provisions required against cases referred for resolution under the Insolvency and Bankruptcy Code (IBC).

Public sector banks, PSB, loan crisis, net interest income, NII, Insolvency and Bankruptcy CodeData from Capitaline database showed that while the public-sector lenders made provisions to the tune of Rs 51,009 crore, their aggregate NII stood at Rs 50,621 crore. This marks a 43.5% year-on-year (y-o-y) jump in provisions. (Image: PTI)

Twenty listed state-owned banks together set aside more as provisions than what they earned as net interest income (NII) during the quarter ended September as lenders front-loaded provisions required against cases referred for resolution under the Insolvency and Bankruptcy Code (IBC). Data from Capitaline database showed that while the public-sector lenders made provisions to the tune of Rs 51,009 crore, their aggregate NII stood at Rs 50,621 crore. This marks a 43.5% year-on-year (y-o-y) jump in provisions. Growth in NII was significantly slower at under 8% y-o-y as state-owned lenders continue to be plagued by the twin maladies of low credit offtake and a high share of non-performing assets (NPAs), which do not yield interest. A clutch of 17 listed private banks also fared poorly on this front, with provisions rising 34% y-o-y to Rs 11,843 crore. NII growth at private banks was even slower than at their public-sector peers, rising only a little over 3% y-o-y to Rs 30,948 crore. Among the 37 banks, the steepest climb in provisions came at Oriental Bank of Commerce (OBC), which saw the figure jump 123% y-o-y to Rs 3,281 crore. OBC said it has set aside the entire Rs 868.41 crore required as provisions against its exposure to nine stressed accounts admitted by the National Company Law Tribunal (NCLT).

The Reserve Bank of India (RBI) had asked the bank to provide for Rs 289.47 crore in the current quarter and the remaining amount in the subsequent two quarters, it added. State Bank of India (SBI) and Union Bank of India saw provisions surge 114% and 109% respectively, on a y-o-y basis. After SBI’s results, chairman Rajnish Kumar said the idea was to enhance the bank’s loss-absorption capacity and move towards international accounting standards. “We had some cushion available in the form of stake sale in SBI Life (Insurance Company) and we thought it prudent to increase our NPA coverage ratio which is (now) 65%,” Kumar said, adding that he wants the bank to be able to weather any storm in the future.

Union Bank saw provisions surge for a similar reason, setting aside Rs 1,566 crore as provisions from the first list of accounts referred to the NCLT. However, this did little for the bank’s provision coverage ratio (PCR). In a recent note, Credit Suisse said, “Annualised credit cost was elevated as the bank took large provisions for IBC-1cases given low cover. Despite this, PCR is still at 49%. With nearly 5% of loans still in the non-NPA impaired bucket, credit cost would remain high in 2H (October-March).” Among private lenders, South Indian Bank saw the largest rise in provisions, which grew 102% y-o-y to Rs 454 crore. Management attributed the jump to a fall in the net asset value of investments in security receipts on the basis of NAV declared by an asset reconstruction company. Most banks recorded a rise in NII. The exceptions were UCO Bank, Dena Bank and Axis Bank, where NII declined by 22%, 11% and 2%, respectively.

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