The banking sector will need a close look by the new government, which is set to take over next week, in the wake of ballooning bad loans and falling profits. While the SBI has shown an improvement in its asset quality, the situation continues to be grim for the banking sector, especially public sector banks.
As per latest figures, 36 banks have reported gross NPAs of Rs 2,34,014 crore by March 2014, a 36 per cent jump from Rs 1,71,853 crore on a year-on-year basis.
“The banking sector did push down overall performance while non-bank companies did witness improvement in profit margins. In the case of banks, the NPAs continued to rise sharply thus putting pressure on profit margins,” says a study by Care Ratings.
Financial results of 35 banks (excluding SBI) showed that net profit witnessed a sharp decline of 9.1 per cent as against 9.4 per cent in the previous year. Net profit margin continued to be under pressure and declined to 9.1 per cent as against 11.2 per cent last year.
NPAs have increased sharply during the year as a slowing economy resulted in higher quantum of bad loans. Though the SBI managed to arrest the rising NPA levels, that is not the case with other PSU banks. Punjab National Bank posted a 28.7 per cent fall in net profit in the fourth quarter of FY14, dragged down by higher provisions for bad debts. PNB faced pressure on asset quality with gross NPAs increasing to 5.25 per cent from 4.27 per cent and net NPAs rising to 2.85 per cent from 2.35 per cent. It reported fresh slippages of Rs.4,189 crore and loans restructured during the quarter were Rs 2,900 crore.
Union Bank of India showed a 26.61 per cent fall in net profit at Rs 579 crore for the quarter ended March 2014 on account of higher provisioning for NPAs. “The economy is not doing well and the consequences are being suffered by the banking industry, which is also seeing below par growth,” a senior bank official recently.
Bank of India’s net profit for the fourth quarter ended March fell by 26.3 per cent to Rs 558 crore. The PSU bank’s gross NPA ratio stood at 3.15 per cent at the end of March 2014, compared with 2.99 per cent in March 2013.
Meanwhile, SBI’s gross NPAs came down to Rs 61,605 crore in March 2014 as against Rs 67,799 crore.
However, there are some exceptions. Bank of Baroda reported a 12.5 per cent rise in net profit at Rs 1,157 crore for fourth quarter on better growth in net interest income, recoveries and control on operating expenses. Its gross NPA ratio stood at 2.94 per cent in March 2014 as against 3.32 per cent last year.
Rating agency Crisil expects gross NPAs of banks to remain elevated in the coming quarters following slippages on loans restructured in FY12, continuing slippages in the infrastructure sector (especially power sector) and the construction sector and lower asset sales to asset reconstruction companies on account of pricing issues.