Most lenders see bad loan burden easing

Mumbai: The Reserve Bank of India’s (RBI) clean-up drive has started to show some results with 13 banks reporting lower NPAs in the last two or more successive quarters. This is a positive sign for the banking sector which had been reeling under pressure owing to non-performing assets (NPAs) worth around 10 lakh crore. Around 11 public sector banks (PSBs), namely Dena Bank, Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank (IOB), Oriental Bank of Commerce and Bank of Maharashtra, have been under the Reserve Bank of India’s prompt corrective action (PCA).

Bank of Maharashtra showed a drop of almost 2 per cent in gross NPA ratio from 21.18 per cent in Q1 FY19 to 18.64 per cent in Q2 FY19, whereas IOB has seen a slight decline in gross NPA ratio from 25.64 per cent in Q1 FY19 to 24.73 per cent in Q2 FY19. According to CARE Ratings, 13 banks have witnessed a decline in NPA ratio in the last two or more successive quarters. Moreover, lenders like Andhra Bank, Canara Bank, Indian Overseas Bank (IOB), Punjab National Bank (PNB), State Bank of India (SBI) and Vijaya Bank have witnessed lower ratios in the last two quarters.

Giving a different perspective despite the positive sign, global financial services major, DBS stated fundamentals still remain a long way from returning to ‘healthy level’. The report on ‘Some trends in NPA movement’ by CARE stated, “This (decline in NPA) is positive for the PSB group.” The report pointed out that only two public sector banks (PSBs) — Vijaya Bank (5.86 per cent) and SBI (9.95 per cent) — have NPA ratio of less than 10 per cent. Federal Bank and City Union have managed to keep their gross NPA ratio in and around 3 per cent for the last few quarters. “Dhanlaxmi Bank and Laxmi Vilas Bank have witnessed an increase in the NPA ratios in the last two quarters.

For the latter it is above 10 per cent. In case of Karur Vysya Bank the ratio has been increasing and peaked at 7.7 per cent in Q2 FY19.” Karnataka Bank has reined in this ratio to less than 5 per cent just like South Indian Bank. However, despite being under PCA framework, Dena Bank’s gross NPA ratio has continued to raise. Gross NPA ratio of IOB and Dena Bank— is still above 20 per cent in Q2 FY19— is at 24.73 per cent and 23.64 per cent. Meanwhile, state-run Allahabad Bank said that the government is infusing Rs 3,054 crore into it during the fiscal.

The CARE report said, “The emerging trends in the movement of NPAs when viewed along with the provisions made by banks do indicate that the NPA cycle may have peaked and that the recognition issue has by and large been addressed. This is evidenced from the declining NPA ratios for most banks. There would however still be some banks whose NPA ratios would have to be monitored closely for another two quarters.” In Q2 FY19, nine banks reported an increase in provisions with the sharpest being witnessed by PNB.

The highest provisions are made by SBI (declining provisions but still high), PNB, ICICI Bank, Axis Bank and Canara Bank with Rs 12,092 crore, Rs 9,758 crore, Rs 3,994 crore, Rs 2,927 crore, and Rs 2,835 crore respectively. But DBS report suggested that asset quality issues are unlikely to be resolved without ‘exceptional measures’, and hence will remain a long-term issue. a

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