Banking: Time for private bank to come off pedestal
Public sector banks have been blamed for the unprecedented pile-up of bad loans since the Reserve Bank of India (RBI) ordered a clean-up of books last year. Indeed, the quarterly results that followed the clean-up showed government banks held the most toxic assets. Their private-sector counterparts were hailed for their high asset quality.
But the September quarter results show private-sector lenders, at least some of them, are as deep in troubled waters as their public sector peers. At the aggregate level, private-sector banks saw bad loan stock double on a gross basis to Rs66,314 crore and provisions treble to Rs1.2 trillion from a year ago.
For the public sector group, the surge in bad loan stock was similar, but provisions rose only 49%.
This could mean private-sector lenders were slow in recognizing distressed assets and making provisions. The casualties were Axis Bank Ltd, ICICI Bank Ltd, Yes Bank Ltd and South Indian Bank.
Axis Bank saw a significant portion of loans on its watchlist turn bad, provisions climbed fivefold and the provision coverage ratio dropped to 60% from 72% in the March quarter. At ICICI Bank, gross bad loans doubled and it had to provide Rs7,082.69 crore for them. Yes Bank and South Indian Bank also posted weak asset quality metrics.
But the real worry is these private-sector lenders’ net non-performing assets (NPA). The accretion in net NPAs for these lenders was far higher than that of gross NPAs. This means upgrades and recoveries are slowing even as fresh slippages are showing no signs of abatement. On an aggregate basis, private-sector banks’ net NPA stock jumped 132% while that of the public sector banks surged a shade lower by 103%.
Private banks have always been perceived to be more efficient and having a firm hand on errant borrowers. But the net NPA accretion shows they are no better than their public sector counterparts.
Granted, public sector lenders are still the worst lot but it is time that private-sector banks, especially corporate lenders, are valued more realistically. As quarters pass, the divide of performance between private and public sector lenders will only get narrower. After all, the most indebted borrowers are on the books of both.