SFBs report fall in Q2 PAT as asset quality worsens

November 16, 2021 12:15 AM

AU Small Finance Bank, which had gross advances of Rs 36,405 crore as on September end, reported a net profit of Rs 279 crore, lower 13% than the previous year.

AU Small Finance Bank said its average collection efficiency in Q2FY22 stood at 109%, at pre-Covid levels.AU Small Finance Bank said its average collection efficiency in Q2FY22 stood at 109%, at pre-Covid levels.

By Piyush Shukla

Small finance banks (SFBs) reported a 13-60% year-on-year decline in their net profit for the July-September (Q2FY22) quarter owing to deterioration in the asset quality.

AU Small Finance Bank, which had gross advances of Rs 36,405 crore as on September end, reported a net profit of Rs 279 crore, lower 13% than the previous year. The lender’s gross non-performing asset ratio (GNPA) stood at 3.16%, higher than 1.54% a year ago. In absolute terms, gross bad loans rose to Rs 1,151 crore, compared with Rs 423 crore from a year ago.

Equitas SFB reported a 60% year-on-year plunge in its net profit for Q2 at Rs 41 crore due to deteriorating asset quality and subsequent higher provisions. The lender’s GNPA ratio rose 234 basis points on year to 4.82%. Net NPA ratio was higher at 2.46%, against 1.13% a year ago. Due to higher bad loans, total provisions other than tax and contingencies rose to Rs 137.81 crore, higher by 84.4%.

Equitas said its July-September bottomline was affected on account of higher provisions for restructured assets. The bank carries Rs 196-crore provisions towards restructured loan book of Rs 1,401 crore.

Ujjivan Small Finance Bank reported a net loss of Rs 274 crore in the reporting quarter on account of higher provisions. It had reported a net profit of Rs 96 crore a year ago. As on September 30, Ujjivan’s GNPA ratio stood at 11.80%, sharply higher than 0.98% a year ago and 9.79% as on June end. “We have done major restructuring and taken accelerated credit provisions during the quarter. We believe, subject to potential third wave of Covid, our GNPA has peaked and will gradually reduce hereon,” said Martin PS, officer on special duty, in a post-earnings release.

Suryoday SFB reported a net loss of Rs 1.9 crore owing to higher provisions. The lender’s gross bad loan ratio rose 796 basis points on year to 10.21%. Subsequently, its provisions rose over six folds to Rs 97.3 crore.

Asset quality outlook

Even as SFBs reported deteriorating asset quality in Q2, trends in collections show that the same may improve in the second half of current financial year. AU Small Finance Bank said its average collection efficiency in Q2FY22 stood at 109%, at pre-Covid levels.

“While the overall GNPA remained steady compared to the first quarter, there was improved collection efficiency, leading to reduction in overdue cases between 1 and 90 days. And with X-bucket collection efficiency coming back to the pre-Covid level, we expect to reach steady state operating level shortly,” said PN Vasudevan, MD and CEO at Equitas Small Finance Bank, in a post-earnings release.

In a recent conversation with FE, Carol Furtado, chief operating officer at Ujjivan SFB, said, “Collections have picked up well. We are focused on reducing the PAR (portfolio at risk) flow to higher buckets, collections from restructured and NPA pool, further increasing overall collections. With this context, we believe things in H2 (Oct-March) would be better on the credit quality front.”

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