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Ravi Krishnan

Posted: Mon, Jul 30 2012. 6 :11 PM IST

Asset quality problems

continue for PSU banksState-owned banks have flattered to deceiveafter their March quarter earnings

pronouncements much like the majority of

Indian sporting teams

Print

State-owned banks have flattered to deceive after their March quarter

earnings pronouncements much like the majority of Indian sporting teams.

At that time, they were quick to declare that the worst is over, in terms ofdeteriorating asset quality. But the June quarter earnings paint quite a

different picture.

Of the eighteen public sector banks which have so far declared their

earnings, 13 have reported an increase in stressed assets. For these

lenders, gross non-performing assets as a proportion of their total lending

has increased sequentially from the March quarter. Some bigger state-owned

lenders saw the sharpest rise.

For instance, Bank of Baroda

saw its gross NPAs rise 31basis points during the quarter

to 1.85% of its loan book.

Similarly, Punjab National Bank

saw a 41 bps rise in its bad

loans level to 3.34%. While it

may come as somewhat of a

surprise, when one measures it

against the optimism exuded

by bank managements, what

else could one expect in a

sluggish economy?

But except for a slight expansion shown by the Purchasing Managers

Indices, other economic indicators or even corporate earnings show no

cause for such optimism. One point to note here is that state-owned banks

lend to a broader spectrum of customers; for instance they have a bigger

share in priority sector loans. In Canara Banks case, for example, 70% of its

slippages in the June quarter came from this segment.

That, however, is just one half of story. There is not much respite in the

amount of recast loans in the June quarter. Sure, some of the bigger banks

have shown a decrease in restructured loans they added in June. Bank of

Baroda recast only Rs 770 crore in June compared to Rs 5,281 crore the

previous quarter. Similarly PNB restructured loans worth Rs 1,240 crore in

June compared to Rs 8500 crore in March. But for every BoB and PNB, there

is a Corporation Bank or Allahabad Bank. The former, for instance, almost

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doubled its restructured portfolio in the last three months to Rs 14,000

crore.

Yes, a significant portion of these recast loans were those given to state

electricity boards and airlines. Some brokerages take that as an indication

that there might not be much additions to recast loans in the coming

quarters. But increasingly other sectors as varied as ports and sugar are

coming under stress, as can be seen from the June quarter earnings. If the

rains fail further, a portion of crop loans too might need to be restructured,adding to continued pressures on public sector banks.

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