Banking: the weak, the vulnerable and the winners

The public sector banks continued to be the worst performers with bad loans doubling from a year ago and private banks were the winners after making reasonable profits


As loan books shrink and bad loans age, these banks will find it difficult to sustain themselves. Photo: Mint
As loan books shrink and bad loans age, these banks will find it difficult to sustain themselves. Photo: Mint

If the December and March quarter results of banks showed state-run lenders as weaklings and private banks as winners, the June quarter numbers separated the sector into three clear parts—the weak, the still vulnerable and the winners. Collectively, public sector banks continued to be the worst performers with bad loans doubling from a year ago and private banks were the winners after making reasonable profits.

The weaklings: Small and mid-sized public sector banks featured here with their gross non-performing assets (GNPAs) exceeding 11% of loan book. However, even some private banks saw bad loan ratios worsen. For instance, the GNPA ratio for Dhanlaxmi Bank Ltd rose to 7.02% from 6.36% in the March quarter. ICICI Bank Ltd, too, saw GNPA ratio rise for the third quarter to 5.87% but, given its strong capital position, it would be unfair to term it a weakling. Unlike ICICI Bank, small- and mid-sized public sector lenders have shrunk loan portfolios by refraining from fresh lending even as existing loans decayed at a faster pace. As loan books shrink and bad loans age, these banks will find it difficult to sustain themselves. Four state-run banks—Central Bank of India, Indian Overseas Bank, United Bank of India and UCO Bank—had a capital adequacy ratio a hair’s breadth away from the regulatory minimum of 9.6%.

The still vulnerable: Asset quality of the country’s largest lender, State Bank of India (SBI), stabilized as its gross bad loans rose by a modest 3.43%. It looks like much of the pain has passed for SBI, with GNPAs at 6.94% of total loans amid a huge decline of 70% in fresh slippages (new loans turning bad). But the lender has a watch list of Rs30,000 crore loans, estimating that 30% of these could turn bad. In the June quarter, Rs2,165 crore worth of slippages was from the watch list. In the private sector, Axis Bank Ltd, too, has a watch list of around Rs20,000 crore in loans. Bank of Baroda, Canara Bank and ICICI Bank, too, are vulnerable given the rise in bad loans.

The winners: Clearly, the best of the pack are from the private sector. HDFC Bank Ltd continued to show strong asset quality by capping its bad loan ratio at a little above 1%. The lender delivered 20% growth in net profit and its net interest income, too, grew by a healthy 22%. Others in this group were IndusInd Bank Ltd, Kotak Mahindra Bank Ltd and Karur Vysya Bank.

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