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India’s public sector banks are heading towards bad times. We don’t need a soothsayer to say this—a close look at the earnings of banks in the quarter ending March makes it quite clear.

Among 39 listed banks in India—both private and public—four recorded net losses in the March quarter, and three of them are public sector banks. They are Bank of India, Oriental Bank of Commerce and Punjab and Sind Bank. At least nine other public banks recorded a drop in net profit compared with the year-ago quarter; and for a few of them, the drop has been pretty sharp. For instance, Punjab National Bank (PNB) posted a 62% drop in net profit; for Dena Bank, United Bank of India (UBI) and Indian Overseas Bank (IOB), the drop in net profit was even sharper—between 70% and 87%. Two private banks that posted a drop in the March-quarter net profit are Jammu and Kashmir Bank Ltd and South Indian Bank Ltd.

The sole reason for the losses and the drop in net profits is ballooning bad assets, for which banks need to set aside money. Fourteen Indian banks now have at least 5% or more gross bad loans and, barring two, all are public sector banks. UBI’s gross bad loans are 9.49% of loan assets and those of IOB, 8.33%. Similarly, the seven banks that have between 4% and 5% bad assets are all public sector banks. Of the five banks that have 3-4% gross bad assets, four are from the public sector. ICICI Bank Ltd is the lone private sector entry into this segment. After setting aside money for such loans, 13 banks have at least 3% or more net non-performing assets (or NPAs) and barring one, all are from the public sector.

Provisions on account of bad assets have eaten into their net profit, even though not too many banks have shown a drop in their operating profit. For instance, PNB’s provision for bad loans rose 161% in the March quarter over the December quarter—from 1,468 crore to 3,834 crore; for Punjab and Sind Bank, the rise has been 150% and for Syndicate Bank, 146%. Among others, IDBI Bank Ltd’s provision rose 80%, that of Bank of Baroda 44%, and Bank of India 43%.

Ideally, some of the banks should have set aside more money to take care of bad assets but they could not do so as that would have affected their profits even more. In absolute terms, gross bad assets of the 39 listed banks rose a little more than 25% over the past year to 3.02 trillion and, after provisioning, net bad assets rose some 26% to 1.68 trillion.

The larger story is this: The past two years have separated the men from the boys. Data collated by my colleagues Ashwin Ramarathinam and Ravindra Sonavane in Mint’s research wing show that private banks are surging ahead of their counterparts in the public sector who are starved of capital and suffering from a larger mound of bad assets. Going by the latest available data, there are 43 foreign banks in India, but they are not taken into consideration for this analysis. Collectively, they account for 0.33% of the branch network, a little less than 4% of bank deposits and around 4.5% of advances. There are a few unlisted small private banks too, but for this analysis, I am focusing on the 14 listed private banks and 25 listed public sector banks.

In almost every parameter, private banks are doing better than their peers in the public sector and their market share has been growing. In fiscal year 2014, private banks’ operating profit was almost flat, but in 2015, it rose 19%. In contrast, public sector banks’ operating profit dropped close to 6% in 2014 and rose about 8% in 2015. After setting aside money for bad loans, private banks’ net profit rose 17.66% in 2014, while in 2015, the growth was 18.11%. Public banks’ net profits dropped a little more than 26% in 2014 and just about 1% in 2015. Public banks’ gross NPAs grew close to 25% in 2015 after surging 37% in the previous year, while gross NPA growth for private banks was 30% and 15% in those two years respectively, albeit on a lower base. Post provisions, net NPAs of public banks grew 42% in 2014 and 26% in 2015. The comparable figures for private banks are 45% and 43%—again on a relatively smaller base.

What is more interesting to note is that public sector banks are lagging behind private banks both in deposits and advances growth. In 2015, public sector banks’ business growth has been almost half that of private banks. For instance, public banks’ deposit growth has been 9.13%, against private banks’ 16.16%; similarly, private banks’ advances grew close to 19%, compared to 8.13% for public banks.

As a result, private banks’ market share has been growing steadily. In the past two years, their share in operating profit has grown from 29.13% to 32.59%, while that of net profit has jumped from close to 35% to more than 50.5%, even as their deposits and advances continue to remain one-fifth of public sector banks’ despite steady growth. Public sector banks’ market share of deposits in the past two years has slipped from 81.82% to 80.92%, and that of loan advances from 80.72% to 78.72%.

In other words, with roughly one-fifth of market share in bank deposits and advances, private banks account for more than half the net profit of the industry. This is possible because their market share of gross NPAs is a shade less than 10% and net NPAs around 7%. Incidentally, the 14 listed private banks’ total net profit is about 25% more than their gross bad assets, while the 25 listed public sector banks’ gross bad assets are almost seven-and-a-half times their net profit.

Do we need to say more on why the market does not see value in most public sector banks?

Tamal Bandyopadhyay, consulting editor at Mint, is advisor to Bandhan Financial Services Pvt. Ltd, India’s newest bank in the making. He is also the author of Sahara: The Untold Story and A Bank for the Buck. Email your comments to

The writer’s Twitter handle is @tamalbandyo

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