When State Bank of India (SBI) announces its results on Monday, most eyes will be on the lender’s asset quality numbers and loan-loss provisioning rather than the profit figure.
As the country’s largest bank, it is a bellwether of the financial sector and a proxy for the economy. But SBI’s numbers could possibly be only a reflection of the gloom that has encompassed the banking system, a glimpse of which can be viewed in the accompanying table.
Sure, about 10 out of the 23 banks for which data is available have shown an improvement in their gross non-performing assets (NPAs) position at the end of December from a quarter ago.
But that doesn’t truly capture the bad loans position. Because, even if the banks have managed to curb the gross NPA position slightly, they have had a significant increase in restructured assets. Thus, if one considers the total of these two, or the sum total of impaired loans, the bad loan position has worsened for 18 of them.
In case of Indian Overseas Bank and Union Bank of India, there has been a dramatic increase in restructured assets.
Nomura Equity Research points out in a recent note: “In the quarter ending December 2011, loans amounting to Rs 211 billion (Rs 21,100 crore) were restructured. This compares with an average of Rs 33 billion (Rs 3,300 crore) restructured per quarter during the previous eight quarters.”
However, the restructuring of GTL group’s debt of around Rs 16,000 crore skewed the restructuring amount in the last quarter. The brokerage further adds that restructured loan amount currently outstanding is some `91,644 crore, about 2.1% of total commercial bank advances at the end of December. Sixty cases aggregating Rs 45,000 crore have so far been referred to the corporate debt restructuring cell this fiscal, compared with 49 cases amounting to Rs 23,000 crore in FY11.
Though the economy is showing some signs of revival, it could be some time before the situation starts improving. Interest rate cuts are still a couple of months away and brokerages are estimating that loan-loss provisions will increase over the next two quarters, especially driven by sectors such as power, aviation and telecom. That is likely to dampen the enthusiasm for bank stocks, especially since the Bankex index on BSE has already gone up 30% this year.
Also See | Growing gloom (PDF)
Graphics by Yogesh Kumar/Mint