PSU banks may lose out to their private peers

FOR the first time in the banking history of the country, the profits of 13 private sector banks for FY15 could edge past the combined profits of 25 public sector banks.

While the private lenders have reported a total profit after tax (standalone) of Rs 37,361 crore, the the state-owned banks managed to earn Rs 34,640 crore, data from Capitaline, a leading databse of financial sector, show.

In the FY14, the PSU...
banks had earned Rs 2,312 crore more than private banks. But this year due to rising share of non-performing assets (NPAs) has resulted in the gap narrowing significantly. Total provisions made by private banks stood at Rs 10,852 crore while public sector lenders have had to set aside Rs 72,095 crore.

The gross NPA ratio — the percentage of loans that have gone bad — of PSBs stood at 5.47%, up 58 basis points (bps) while for private banks, it rose by 19 bps ratio to 2.01%.

Thus, Bank of Baroda (BoB) and Punjab National Bank (PNB) have both seen their net profits halve in Q4FY15 owing to higher provisioning towards bad loans.

Ranjan Dhawan, MD & CEO, BoB, said recently that it was difficult to give an NPA outlook for FY16. “There are major corporates in great difficulty and there is a debate on whether a major corporate should be classified as an NPA or not. Hopefully, it will not happen in the next one to two quarters but if it happens, we will be hit by several hundred crores from a single company itself,” Dhawan conceded.

During the year, PNB had to provide Rs 7,979 crore, an increase of 76%; the management said on an analysts’ call it expects recoveries to go up, resulting in the write-back of the provisions. Gauri Shankar, PNB executive director and MD CEO, said, “If the provisions are so much, the amount is so huge, let there be some recovery and you will see that we are going to write back the provisions. Ultimately P&L is going to get the benefit.” Shankar listed the affected sectors as infrastructure, power roads ports and steel.

RBI deputy governor SS Mundra observed the level of distress was not uniform across the bank groups and was “more pronounced in respect of public sector banks”.

In the case of State Bank of India (SBI), of the total provisions of Rs 25,812 crore in FY15, Rs 19,086 crore was for bad loans leading to a 21.6% rise in total provisions in FY15.

SBI chairman Arundhati Bhattacharya told analysts that with the slippage numbers still at 15%, “we are almost at the end of the difficult cycle and we are looking at growth”. She expects to grow SBI’s loan book by 14% in FY16 compared with 7.25% in FY15.

“So we are not claiming that situation has completely reversed. We believe that the situation will gradually improve after two or three subsequent quarters. We are also bringing professionals into the banking system and appointing them as directors,” he was quoted saying.

During the year, PNB had to provide Rs 7,979 crore, an increase of 76%; the management said on an analysts’ call it expects recoveries to go up, resulting in the write-back of the provisions. Gauri Shankar, PNB executive director and MD CEO, said, “If the provisions are so much, the amount is so huge, let there be some recovery and you will see that we are going to write back the provisions. Ultimately P&L is going to get the benefit.” Shankar listed the affected sectors as infrastructure, power roads ports and steel.

Earlier this month, RBI deputy governor SS Mundra observed the level of distress was not uniform across the bank groups and was “more pronounced in respect of public sector banks”.

A former public sector banker explained that even if banks were reporting lower slippages, the provisions could rise as some bad loans move from the substandard category to doubtful, attracting higher provisions. An account is classified as substandard if it remains an NPA for less than or equal to 12 months and requires 15% provisioning. It is classified as a doubtful asset after 12 months and the minimum provisioning requirement is 25% while the maximum is 100%.

For the country's largest lender, State Bank of India (SBI), of the total provisions of Rs 25,812 crore in FY15, Rs 19,086 crore was for bad loans leading to a 21.6% rise in total provisions in FY15.

SBI chairman Arundhati Bhattacharya earlier said that with the slippage numbers still at 15%, “we are almost at the end of the difficult cycle and we are looking at growth”.

She expects to grow SBI’s loan book by 14% in FY16 compared with 7.25% in FY15.

Meanwhile, finance minister Arun Jaitley, according to agency reports, has recently said that NPAs of public sector banks would come down gradually over the next two to three quarters. “So we are not claiming that situation has completely reversed. We believe that the situation will gradually improve after two or three subsequent quarters. We are also bringing professionals into the banking system and appointing them as directors,” he was quoted saying.