Banks' bad loan tale gets worse

The Pak Banker - - OPINION - Tamal Bandyopadhyay

Nine­teen out of 39 listed In­dian banks have recorded a drop in prof­its in the June quar­ter and for some of them, the de­cline is be­tween 95% and 81%. Four­teen such banks are con­trolled by the gov­ern­ment. Of the 20 listed banks that have an­nounced an in­crease in prof­its, 11 are from the pri­vate sec­tor. Over­all, the net profit of this set of banks have dropped a lit­tle over 7% in the June quar­ter from a year ear­lier, but if we split these banks into two cat­e­gories, based on own­er­ship, data re­veal that as a group, public sec­tor banks' net profit has plunged more than 21% even as their pri­vate peers' net profit has risen 11.1%.

In In­dian bank­ing, the public-pri­vate di­vide is an old story and, typ­i­cally, the sta­te­owned banks' per­for­mance is in­ex­tri­ca­bly linked to the econ­omy. When the econ­omy shifts to a high-growth path, these banks bounce back to health and the is­sues that af­flict them are swept un­der the car­pet, only to resur­face again at some other time. This has been the prac­tice and I hope that the public sec­tor bank re­forms pack­age an­nounced last week will change this.

Bank's bread-and-but­ter busi­ness in In­dia is giv­ing loans and the so-called net in­ter­est in­come, or NII, is the largest con­trib­u­tor to their profit. As the banks' loan growth has been at an 18-year low, the av­er­age NII growth in June has been about 9% with five banks-four from public sec­tor-ac­tu­ally show­ing a de­cline in NII. Of the 11 banks that have shown a healthy, more-than-20% NII growth, seven are from the pri­vate sec­tor. The growth in fee in­come and trea­sury gains has also been mutedan av­er­age of 14.5%. Here too, 11 banks have ac­tu­ally recorded a de­cline and seven of them are from public sec­tor. On the other hand, only four of the 14 banks are from public sec­tor that have recorded at least 20% or more growth in fee in­come and trea­sury gains.

The key rea­son be­hind the dis­mal per­for­mance is the rise in pro­vi­sions. The banks had to set aside more money to take care of bad loans, which have been on the rise. While in­ter­est in­come has grown at 9.3% and fee and trea­sury in­come at lit­tle over 14.5%, the rise in pro­vi­sions has been close to 39%, from Rs.16,425 crore to Rs.22,741 crore. And this is af­ter the banks had set aside Rs.32,133 crore in the March quar­ter to clean their bal­ance sheets. Bar­ring five banks, all listed banks have set aside more money. Clearly, the strain has been across sec­tors, even though the level of bad as­sets has not been uni­form.

Data col­lated by Ashwin Ramarathinam of Mint's re­search bureau show that 17 banks now have more than 5% gross non-per­form­ing as­sets, or NPAs-15 of them are from the public sec­tor. United Bank of In­dia con­tin­ues to top the list with a 9.57% gross NPAs-lower than in June 2014 but marginally higher than its March level. This is true with most of the banks. Quite a few of them have been able to bring down the level from the year ago pe­riod but the bad as­sets as a per­cent­age of loans have risen for most of them in the June quar­ter over the March quar­ter. This is sim­ple arith­metic-the growth in loan dis­burse­ment was far higher in the March quar­ter than in June. While credit growth shrank, there has been no let-up in the growth of bad loans. As a re­sult, bad loans as a per­cent­age of to­tal ad­vances have grown in March.

In­dian Over­seas Bank now has the sec­ond high­est gross NPAs at 9.4%, fol­lowed by Dhan­laxmi Bank Ltd's 8.45%. Two other pri­vate banks fea­ture in the list of top 26 banks that have at least 3.5% gross NPAs-Jammu and Kash­mir Bank Ltd (6.63%) and ICICI Bank Ltd (3.68%). Only three banks have less than 1% gross NPAs-they are Yes Bank Ltd, In­dusInd Bank Ltd and HDFC Bank Ltd. In­ci­den­tally, only 12 of the 39 banks have been able to bring down their gross NPAs to be­low the year-ago level.

Af­ter pro­vi­sion­ing, nine banks now have 4% or more net NPAs and, bar­ring one, all are from the public sec­tor. In­dian Over­seas Bank has over­taken United Bank of In­dia to oc­cupy the top slot with 6.31% net NPAs against 6.3% for the Kolkata-based bank. Seven other banks have at least 3% or more NPAs and six of them are from the public sec­tor. Of the 12 banks that now have be­tween 2% and 3% net NPAs, two are from the pri­vate sec­tor-Jammu and Kash­mir Bank (2.95%) and Kar­nataka Bank Ltd (2.05%). Six listed banks have less than 1% net NPAs-all from the pri­vate sec­tor.

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