Private banks’ provisions up 75% in Q3, PSBs see 17% fall

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Mumbai | Published: February 16, 2017 5:21:55 AM

Total provisions – money set aside as buffer for all loans – of 16 private sector banks rose 75% year-on-year (y-o-y) to R9,473.74 crore in the December quarter, while provisions of 23 public sector banks contracted by around 17% y-o-y to R34,758 crore, Capitaline data showed.

Total provisions – money set aside as buffer for all loans – of 16 private sector banks rose 75% year-on-year (y-o-y) to Rs 9,473.74 crore in the December quarter, while provisions of 23 public sector banks contracted by around 17% y-o-y to Rs 34,758 crore, Capitaline data showed.

Bankers FE spoke to said the rise in provisions in Q3 was primarily owing to ageing of existing non-performing assets (NPAs) where the rate of provisions has increased over time. According to B Sriram, managing director, SBI, public sector banks had began setting aside more provisions than required much before their private sector counterparts, expecting a fall in the asset quality.

For instance, Axis Bank’s provisions in Q3FY17 were five times higher than the corresponding quarter last year at R3,796 crore. Its provisions in the quarter under review constituted almost 40% of the aggregate provisions of 16 private sector lenders. HDFC Bank reported provisions of R715.78 crore, up 9.4% y-o-y.

“When accounts turn non-performing, provisions related to them can keep increasing over time if the account status doesn’t improve,” said Jairam Sridharan, chief financial officer at Axis Bank.

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Sridharan said it puts a heavy burden on profitability in future years, driven by accounts that turn NPA at present. “By making larger provisions against NPAs, the bank is taking a lot of the potential pain now to reduce the burden in future.”

State Bank of India (SBI) set aside Rs 8,942.83 crore as provisions, an increase of 12.5% y-o-y.

The other two large PSBs – Punjab National Bank (PNB) and Bank of Baroda (BoB) – reported provisions of Rs 2,935.86 crore (down 22% y-o-y) and Rs 2,079.5 crore (down 66%), respectively.

Kotak Institutional Equities said in a report that the banking sector will likely to see normalisation of earnings and returns over next few quarters with a probable decline in loan-loss provisions. “We believe NPLs may be peaking and we could see potential upgrades,” it said.

The rise in provisions in Q3 is a function of the increase in gross NPAs in the banking industry. While 16 private sector banks have seen an 87% y-o-y rise in bad loans to Rs 85,905 crore,

NPAs of 23 public sector banks rose 54% y-o-y to Rs 5.95 lakh crore.

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