Banks' bad loan tale gets worse
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.