Bashing our banks, particularly the government-owned ones, which roughly have 70% market share of assets, has become a favourite pastime for many. Instead of going deep into the causes of deterioration in health and the possible remedies, let’s focus on some of the vital statistics to get a sense of the state of affairs in the ₹ 150 trillion banking system in the world’s fastest growing large economy.
In the March quarter, 19 of 21 public sector banks (PSBs) announced losses totalling ₹ 62,681 crore. Three listed private banks, too, made losses; overall, the banking system’s net loss was ₹ 55,648 crore, triggered by the need to set aside money to provide for banks’ rising bad loans and erosion in the value of their bond portfolio.
Indeed, massive provision has eroded their profits but what about operating profits? PSBs’ operating profit in the March quarter dropped 26% from what it was a year earlier; 14 of them have posted declines and one reported a loss. Private banks have posted 16.7% growth in operating profit during the quarter.
Overall, operating profit of all listed banks in the March quarter dropped 11% because of anaemic growth in both interest income and other income, including fees.
PSBs’ net interest income rose 1.25%, but other income dropped 3.5%. For the entire industry, income from both the streams has grown a little over 5% each.
Now comes the uglier part. Gross non-performing assets (NPA) of listed banks have grown 44% in the past one year to ₹ 10.25 trillion, with PSBs accounting for ₹ 8.97 trillion.
After provisioning, net NPAs were to the tune of ₹ 5.18 trillion, up 32% from the figure in March 2017. Here, too, PSBs have the lion’s share of ₹ 4.5 trillion.
Four PSBs now have at least one-fourth of their loan books rotten (IDBI Bank Ltd, Indian Overseas Bank, Uco Bank and United Bank of India) and another three have one-fifth of their loan books turning bad (Dena Bank, Central Bank of India and Bank of Maharashtra).
After provisions, three PSBs have more than 15% net NPAs and 11, to their credit, have net NPAs in single digits! Private banks are relatively better off, with none exceeding 10% gross NPAs as yet and only one with more than 5% net NPAs.
This is the state of affairs now. Let’s take a quick look at how their health has been deteriorating over the past three years since the Reserve Bank of India (RBI) reviewed their quality of assets (in the second half of fiscal 2016) and has progressively taken a hard stance, forcing the banks to move insolvency court against the large defaulters, raising the provisioning requirement for bad loans and dismantling all loan restructuring platforms.
Here, I am picking only the PSB data. In fiscal 2016, this set of banks posted a ₹ 28,490 crore loss; in 2017, they had made a paltry profit of ₹ 474 crore; and in 2018, a loss of ₹ 85,371 crore.
Punjab National Bank’s loss during the past three years has been the highest, ₹ 18,784 crore, followed by IDBI Bank ( ₹ 17,612 crore).
State Bank of India’s gross NPAs during this period have risen four times—from ₹ 56,834 crore in September 2015 to ₹ 2.23 trillion in March 2018. IDBI Bank, too, has seen almost a fourfold rise in bad assets during this period, from ₹ 14,758 crore to ₹ 55,588 crore. All other banks, including the profitable Indian Bank and Vijaya Bank, at least doubled their gross NPAs during this period. The graph of net NPA rise is also very similar.
Those who have been able to grow their loan books are able to contain the growth in NPAs as a percentage of loan assets. For instance, in absolute terms, State Bank’s gross NPAs rose four times but in percentage terms, it little more than doubled since September 2015, from 4.15% to 10.91%; however, for IDBI Bank, the percentage growth, too, is four times, from 6.92% to 27.95%.
IDBI Bank’s net NPAs, in fact, grew more than fivefold during this period, from 3.16% to 16.69%, while others have managed to contain the growth between two and three times. In some cases, it could just be optical illusion ,though. One way of containing percentage growth in bad assets is by expanding the loan portfolio. Very few banks could lend fresh in these troubled times, so they have found an easy way out—write off bad assets.
While the insolvency law has slowly started helping banks recover part of their bad assets, it will be a long haul. At least a few PSBs are fast losing their relevance.
Tamal Bandyopadhyay, consulting editor at Mint, is adviser to Bandhan Bank. His Twitter handle is @tamalbandyo.
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