Q2 results: Higher provisions by 3 PSU banks hint at continuing asset quality issues
Mumbai: Quarterly results reported by three state-run lenders on Friday show that asset quality issues continue to plague the banking system. Slow credit growth is making the pain only worse for the lenders.
Mumbai-based Union Bank of India and Kolkata-based Allahabad Bank reported second-quarter net profit of Rs176.67 crore and Rs 65 crore respectively. Central Bank of India reported a large loss of Rs 642 crore.
Union Bank’s provisions against bad loans rose to Rs1,596.21 crore, up 73% year-on-year, from Rs924 crore a year earlier. Central Bank’s provisions more than doubled to Rs1,661.21 crore, from Rs645.44 crore a year ago.
Allahabad Bank’s provisions against non-performing assets (NPAs) fell in the September quarter to Rs692 crore from Rs 838.37 crore a year earlier.
At Union Bank, the gross NPA ratio rose to 10.73% from 10.16% in the June quarter. Central Bank’s gross NPA ratio rose to 13.7% from 13.52% on a sequential basis. Allahabad Bank reported a marginal improvement, with a gross NPA ratio of 12.28% compared with 12.33% as of 30 June.
In October last year, the Reserve Bank of India (RBI) conducted an asset quality review (AQR) wherein it made a list of accounts that continued to be classified as standard assets despite inherent weakness. RBI asked banks to reclassify some of these accounts as NPAs, or make higher provisions against them. The banks were given time until 31 March 2016 to do this.
While the impact of these bad loans had been expected to fade by 31 March, state-owned banks and some large private sector lenders have continued to make higher provisions in the first two quarters of this financial year. Incremental NPAs, however, are much lower than what they were in the October-March period of the last fiscal year.
Allahabad Bank’s net interest income (NII), or the difference between interest earned on loans and that paid on deposits, during the July-September period fell 17% to Rs1,349.43 crore year-on-year. At Central Bank of India, NII fell 11.5% to Rs1,693.4 crore from a year ago. Union Bank reported NII of Rs2,277.44 crore, up about 8.4% from a year ago.
“Provision numbers still remain high for public sector banks, which is a concern. Even if incremental slippages subside, these lenders will continue to make higher provisions, as their provision coverage ratio is quite low. Future trend will be determined by how some of the larger public sector banks perform this quarter, but the expectation isn’t very high,” said Siddharth Purohit, banking analyst at Angel Broking Ltd.