25 PSBs post Rs 15k-cr loss in FY16

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Mumbai | Published: May 28, 2016 7:35:15 AM

Twenty-five state-owned lenders reported a total net loss of more than Rs 15,000 crore for FY16, compared with a combined net profit of Rs 37,974.5 crore in the previous year.

Twenty-five state-owned lenders reported a total net loss of more than Rs 15,000 crore for FY16, compared with a combined net profit of Rs 37,974.5 crore in the previous year.

Total gross non performing assets (GNPAs) for these banks crossed Rs 5 lakh crore at the end of March. At the end of March 2015, these were almost half at Rs 2.63 lakh crore. Stressed assets have necessitated provisions of over Rs 1.53 lakh crore.

The surge in GNPAs follows the Reserve Bank of India’s (RBI’s) directive, post an extensive asset quality review (AQR), to banks to come clean on stressed assets and make adequate provisions for them in the last two quarters of FY16.

Bankers may need to continue to set aside capital for potential loan losses. For instance, the management of Punjab National Bank (PNB), which reported the highest-ever quarterly net loss of Rs 5,367.1 crore by an Indian bank, has indicated that the stress on the asset quality will continue for some more time. “We have done a major cleansing of the balance sheet, but I cannot say the worst is over. How can I say that when unanticipated events may happen which may put pressure on the bank’s assets quality?” Usha Ananthasubramanian, MD & CEO of the Delhi-headquartered bank, said.

“The stress will continue for some more time. Till the economy does not revive and stressed sectors improve,
pressure on the bank’s balance sheet will continue,” Ananthasubramanian observed.

HSBC Global Research, for instance, has noted that PNB’s balance sheet appeared to be more at risk than its earlier expectations. “The lender has 6% exposure to the iron and steel sector and 9.5% exposure to the power sector, which are the two riskiest sectors currently, and which could continue to be the sore point for PNB profitability,” its analysts said.

The surge in gross NPAs comes despite the RBI taking quite a few names off the list of stressed accounts just ahead of Q4 results. Moreover, some lenders like Bank of Baroda (BoB) had claimed to have done much of the provisioning in the December quarter itself. PS Jaykumar, its managing director had then observed that the bank had put all uncertainties behind it. “If something has to be done, it might as well be done now. As far as we can see, we have taken all the required provisions,” he had said after the bank had reported a loss of over Rs 3,000 crore in Q3FY16.

Despite this, the bank reported a loss of over Rs 3,000 crore for the second successive quarter in Q4FY16 as its provisions rose 11.2% on top of Rs 6,164.6 it had set aside in Q3.

Some brokerages believe that with the jump in GNPAs in Q4FY16, most of the stress related to the RBI’s asset quality review (AQR) has now been recognised. “We continue to estimate lower slippage, higher recovery and therefore lower credit cost,” mentions a report on BoB by HSBC Global Research.

Union Bank of India’s chairman & managing director Arun Tiwari said the bank has made all provisions for the AQR and that provisions would be back to normal from the next quarter. Kotak Institutional Equities, in a report, noted that the lender had reported 75% of its exposure in steel as impaired. “We believe this to be a fairly comfortable ratio to give a positive outlook on impairment ratios hereon,” it said.

After an extensive AQR, RBI governor Raghuram Rajan had observed that there are two polar approaches to loan stress. “One is to apply band aids to keep the loan current, and hope that time and growth will set the project back on track. An alternative approach is to try to put the stressed project back on track rather than simply applying band aids. This may require deep surgery. But to do deep surgery such as restructuring or writing down loans, the bank has to recognise it has a problem – classify the asset as a NPA,” Rajan had opined.

The central bank had also asked each member of a consortium of banks to declare an account as NPA if a majority of the other members had done so.

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