Home / Companies / Public sector banks stem slippages, but experts not convinced of recovery yet

Mumbai/Kolkata: Public sector banks put out a mixed bag of quarterly results on Tuesday with some showing signs of a recovery, even as others continued to lag owing to slow business growth and mounting bad loans.

The good news is that some banks have managed to stem the rate of deterioration in asset quality as slippages, or good loans turning bad, were lower than the third quarter of fiscal 2015.

But analysts are quick to caution against jumping to a conclusion on asset quality and warn that slippages could peak in the next two quarters. In fact, Crisil Ltd warned on Tuesday that Indian banks would continue to report high bad debts on their books, even as long-term project refinancing schemes gave them leeway to mask bad debts up to 80,000 crore for some time.

Bankers blame the slack in the economy for their customers’ cash-flow crunch. Large infrastructure loans continue to slide into the bad debt category, but the pace has slowed.

Union Bank of India reported that its fourth-quarter profit dropped 23% on a year-on-year basis to 443.77 crore since it made a higher provision for bad loans. Provisions rose by 9.7% on a year-on-year basis to 1,209 crore in the January-March period, out of which 833 crore was purely to take care of bad debts. Gross non-performing assets (NPAs) as a percentage of total assets stood at 4.96% in the quarter, as compared to 5.08% in the third quarter of fiscal 2015.

Slippages for the fourth quarter were at 1,547 crore, as against 1,738 crore in the third. “We have managed to arrest slippages and, going forward, we promise they will be contained," said bank chairman and managing director Arun Tiwari.

The bank’s domestic advances grew 11.3%, while deposits grew 6.6%. The management plans to grow advances and deposits at around the same level in fiscal 2016.

“There is no demand for credit in the economy. How can we grow our books in this environment?" asked Tiwari, adding, “We expected the economy to turn around, but that didn’t happen."

Mumbai-based Central Bank of India reported a 7.3% increase in net profit to 174.29 crore in the March quarter, as against 162.44 crore in the year-ago period. Its bad loan recoveries, at 635 crore, improved during the period.

Slippages during the quarter stood at 1,604 crore, the lowest for the year. The bank announced that it had written off loans worth 648 crore during the January-March period. Its gross NPA ratio stood at 6.09% as on 31 March, as compared with 6.2% at the end of the third quarter.

“In the third quarter, we had a large amount of slippage coming in from smaller loans which were under 1 crore. In the March quarter, we recovered nearly 150 crore, which has helped us improve our recovery number," said B.K. Divakara, executive director at the bank.

While Central Bank of India’s total advances rose by 6.35% from a year ago, it estimates that in 2015-16 they will grow by over 9% as the economy improves and the bank puts more efforts into growing its retail lending portfolio.

Deposits, too, saw a growth of 6.46% and the bank expects to record a 14.87% growth in deposits this financial year.

Abhishek Kothari, an analyst with Quant Capital, said the fall in slippages should not be considered as an improvement in health as the numbers are on a net basis.

“The gross slippages must be higher. One good indication is that even as slippages are showing signs of deceleration, restructuring has gone up," said Kothari.

“In the first three quarters of the fiscal, there were slippages from restructured assets, but in this quarter, there is hardly anything to show. That is impossible," he said, indicating some financial engineering could have been resorted to.

Kolkata-based UCO Bank, though, showed stress due to slippages from old restructured loans. The slippages, and the resultant provisions to cover them, dragged down the bank’s net profit 26.5% to 209.28 crore in the March quarter.

The bank’s operating profit fell 10.6% to 1,227.27 crore and total income decreased by 0.8% to 5,263.36 crore. Its gross NPA ratio increased to 6.76%, as against 4.32% a year ago and 6.5% at the end of December.

“The net profit slipped mainly on account of defaults on old loans and a conscious decision by the bank to reduce corporate lending," said Arun Kaul, chairman and managing director, UCO Bank.

The bank restructured loans worth 2,333 crore during the quarter but added fresh slippages of 2,074 crore. Of the new slippages, 961 crore came from restructured assets that turned bad. Nearly 900 crore was on account of one big borrower—basmati rice producer REI Agro Ltd.

The UCO Bank scrip lost 8.22% to close at 56.95 on BSE. Union Bank of India gained 2.35% to close at 143.55, while shares of Central Bank of India lost 2.06% to close at 109.40 even as the benchmark BSE Sensex lost 2.29% to close at 26,877.49 points and the banking index Bankex lost 3.09% to close at 20,233.80 points.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.
Recommended For You
Edit Profile
Get alerts on WhatsApp
Set Preferences My ReadsFeedbackRedeem a Gift CardLogout