Aggregate losses for a clutch of 21 banks for the three months to June came in at Rs 16,614.52 crore, led by a massive loss of Rs 4,875 crore from State Bank of India (SBI) and Rs 940 crore from Punjab National Bank.
Aggregate losses for a clutch of 21 banks for the three months to June came in at Rs 16,614.52 crore, led by a massive loss of Rs 4,875 crore from State Bank of India (SBI) and Rs 940 crore from Punjab National Bank. The aggregate losses of these 21 banks for the three months to March stood at Rs 62,641.27 crore.
Only seven of the 21 public sector banks (PSBs) posted a profit, data from Capitaline showed. In Q1FY18, the 21 banks had reported a combined profit of Rs 516.68 crore. Operationally, the banks did not fare too badly with the combined net interest income (NII) increasing nearly 25% y-o-y to Rs 59,9529.96 crore. However, provisions, primarily for loan losses, jumped a staggering 72% to Rs 63,010.48.
Analysts from Jefferies believe that while Q1FY19 was a mixed performance, SBI is better positioned among the peers to capture emerging opportunities amidst slackened competition. However, given higher investment depreciation, they pruned the FY19 earnings by 10% even as operating profits were steady. “Value in its non-banking subsidiaries will also be a more stable and scalable vector,” they noted. “Asset quality was mixed with higher retail & agri slippage offsetting lower corporate slippage & IBC recoveries. The SBI management has guided an aggressive 2% credit cost for FY19 – implies lower net-slippages & provision write-backs,” they added.
Punjab National Bank posted a loss of Rs 940.01 crore. The loss turned out to be lower than what analysts predicted owing to several one-offs. Analysts from Kotak Institutional Equities wrote, “PNB reported lower-than-expected losses and while the gross NPLs declined 4% q-o-q, the slippages were still high and mostly led by small-ticket loans. PNB’s asset quality showed improvement in Q1FY19 with a decline in gross NPLs of 4% q-o-q on absolute basis and 12 bps q-o-q to 18.3% of loans. The bank’s net NPLs declined 10% q-o-q on absolute basis and 66 bps q-o-q to 10.6% of loans. Slippages were high at 7% of loans and were driven partly by fresh debits into existing NPLs as well as agriculture (~25% of slippages).”
Although Union Bank of India posted a profit of Rs 129.54 crore, experts are skeptical about the future. Analysts from Nomura said, “Slippage of Rs 470 crore without a reduction in stress book was a negative and is the key reason for the management increasing its slippage guidance for FY19 to 3.5% vs 3% given earlier. Further, recognised stress in power/textiles/roads at 25-30% of exposure is relatively lower compared with peers, and gives less comfort on the recognition catch-up. Provision cover has not increased q-o-q and remains low at 50%, which implies credit cost pressure will remain elevated. From a business perspective, momentum remains soft. The only silver lining is the sustained growth momentum in the retail segment (up 18% y-o-y).”
Bank of Baroda posted a 160% increase in y-o-y profit to Rs 528.26 crore. The lender’s loan book grew 9.8% y-o-y, NII was up 28.7% y-o-y and NIM at 2.65%. Analysts from Jefferies said, “we derive greater comfort on its asset quality (GNPL to decline by 6%) as well as earnings capacity. We believe a combination of the above two factors should result in ~14% RoE in FY19E which could move up to ~16% by 21E. While there’s still some quarter-to-quarter uncertainty on the earnings & slippages given the lumpy nature of the watch list, it is pertinent to point that our book value adjusts for 80% haircut on gross stressed assets.”
Indian Bank posted a profit of Rs 209.31 crore, a 43% y-o-y decline, but experts maintained a positive outlook. Analysts from Anand Rathi said, “decreasing stressed pipeline, emphasis on granularity in its loan book and benefits from further improvements in operating leverage would gradually improve Indian Bank’s profitability in the medium term.”