New bank chieftains like to start on a clean slate. A month after Shubhalakshmi Panse took over as chairperson and managing director, Allahabad Bank’s September-quarter earnings reveal a massive clean-up of its bad loan accounts.
Additions to gross non-performing loans in the September quarter totalled Rs.1,149 crore. That is not only a 53% jump from the June-end number, but also 10 times the Rs.100 crore average addition to non-performing assets (NPAs) in the past eight quarters.
To be sure, even before this quarter, Allahabad Bank was looking at worsening asset quality. It had restructured loans worth Rs.4,780 crore in the June quarter. But with the bank deciding to move dodgy loans outright to the NPA account, recast loans amounted to only Rs.1,720 crore in September, as its new chairperson told CNBC TV-18.
The upshot was that an increase in provisioning mangled its bottomline. But, in any case, Allahabad Bank’s operational performance was not all that good.
Net interest margins fell 19 basis points (bps) from June-end to 2.98%. On a year-on-year basis, the fall was a sharper 70 bps, as a result of which net interest income declined one-tenth. One basis point is 0.01%. With other income growth also declining, it was no wonder that operating profit fell 16% from a year ago, the first decline in at least nine quarters. After provisioning took its toll, net profit fell by half from a year ago to Rs.234 crore.
The bank has hinted at a couple of more loan restructurings in the current quarter and an optimistic projection of NPA additions, too. It will be crucial to meet that guidance for the stock to have any chance of rallying.