The naked truth about PSU banks

Rising bad assets are to blame for the dismal results announced by three large PSU banks on Tuesday

Tamal Bandyopadhyay
Updated29 Jul 2015
There are many reasons behind the sorry state of affairs in India&#8217;s state-run banks. Photo: Hemant Mishra/ Mint<br />
There are many reasons behind the sorry state of affairs in India&#8217;s state-run banks. Photo: Hemant Mishra/ Mint

Mumbai:

India’s public sector banks have no place to hide—they stand in full public glare.

Three large state-owned banks announced their June quarter earnings on Tuesday.

Punjab National Bank (PNB), the largest among them, announced a 48% drop in net profit.

Bank of India fared worse. Its net profit plunged 84%, after posting a loss in the previous quarter.

Another Mumbai-based bank, Union Bank of India, posted a 22% drop in profit in the June quarter.

The reason behind such a dismal performance?

Rising bad assets.

PNB’s gross non-performing assets (NPAs) have risen to 6.47% of advances and after setting aside money to cover the risk of default, its net NPAs are now at 4.05% of the total loan book.

For Bank of India, gross NPAs as a percentage of total loans are now 6.8% and net NPAs 4.11%.

Union Bank’s gross NPAs are now 5.53% and net NPAs 3.1%.

All three banks have recorded a substantial rise in their bad assets from the year-ago period and their earnings are below the consensus estimates of analysts. The villain of the piece obviously is rising bad assets for which they had to set aside money, denting their profits.

There is a probability that their bad assets will rise further as part of the loans that have been restructured will slip. They are unlikely to be able to cover the higher provisioning by rising interest income as demand for loans continues to be slack. In these circumstances, most bankers seem to be praying for the economy to look up.

There are many reasons behind the sorry state of affairs in India’s state-run banks. The least the government can do is to speed up the appointments of chief executive officers at large banks, pending for months now. A plan to have chairmen at state-run banks to guide their boards has also not seen the light of the day.

Tamal Bandyopadhyay, consulting editor of Mint, is adviser 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 bankerstrust@livemint.com. His Twitter handle is @tamalbandyo

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