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Asset quality top concern for banks in Q2

Poor asset quality continued to be a worry for the banking system in the second quarter.

Poor asset quality continued to be a worry for the banking system in the second quarter of the financial year due to a weak macro environment and sluggish revival in sectors such as infrastructure, metals and mining.

Gross non-performing assets (NPAs) grew 32.48% y-o-y to R2.18 lakh crore for 37 banks, as per data collected by FE. Of these, public sector banks reported a 35% y-o-y rise in gross NPAs at R1.95 lakh crore as on September 30, while private sector banks showed a moderate rise in NPAs of nearly 13% from the previous year. As a ratio, gross NPAs for PSBs were at 4.82% at the end of Q2, an improvement of 10 bps from the June quarter.

?If you talk of the macro picture, we have probably reached the bottom and things should only improve from here. As far as asset quality is concerned, the pressure on cash flows is going to continue for some time,? Chanda Kochhar, CEO & MD of ICICI Bank, had said earlier.

Gross NPAs of India?s largest lender, SBI, rose to R64,206 crore at the end of the September quarter. Punjab National Bank?s gross NPAs stood at R16,526.26 crore, while Central bank of India?s NPAs surged to R11,564 crore.

?Non-performing loan (NPL) slippage remains elevated for most banks at 2-5%, similar to the past few quarters. IDBI Bank, Union and Oriental Bank of Commerce saw an acceleration in slippages, while Indian Overseas Bank, Bank of Baroda and Bank of India ? despite some moderation ? continue to witnesses high levels of slippages as well,? said a recent report by Credit Suisse.

Net profit for banks was down 23.53% from last year at R13,969 crore. Again, public sector banks fared worse as their net slid 47.35% y-o-y to R6,242.96 crore. For private sector banks, net profit was up 20.55% from last year at R7,726.63 crore.

SBI?s net fell 35% y-o-y to R2,375 crore, while ICICI Bank reported a net of R2,698 crore, up 13% from the previous year. For HDFC Bank, the second largest private bank, net profit rose 27% to R1,982 crore, which was the slowest in a decade.

PSBs? profitability was hit this quarter with many banks increasing their provisioning for bad loans and reporting mark-to-market losses on their bond portfolios. SBI?s provisions for the quarter stood at R3,028 crore, up 66% from a year ago. Provisions at ICICI Bank were at R625 crore compared to R508 crore in the same period of the previous fiscal. Provisions at Central Bank of India spiked to R1,841 crore, nearly four times the provisioning in the June quarter.

Most banks also took an MTM hit on their bond portfolios in the second quarter. Most public sector banks

decided to amortise their losses over the next three quarters, while private sector banks chose to take the losses in the September quarter itself.

?At this point of time, we felt that implicit with our past accounting policies, we should just take the hit right now,? said Paresh Sukthankar, executive director at HDFC Bank.

Total advances of the 37 banks in Q2 grew 12.54% y-o-y, nearly three times the growth in the June quarter. As of September 30, their advances stood at R52,03,240.07 crore. Bank credit grew faster in the second quarter as companies had looked to banks for funding their short-term loans as RBI?s liquidity controlling measures in July had made the commercial paper more expensive.

?Short-term funding for corporates wasn?t available through the commercial paper market. Subsequent to that, the CP rates are lower than bank base rates. As a result, these companies have gone back,? said SBI chairperson Arundhati Bhattacharya.

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First published on: 15-11-2013 at 05:07 IST
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