PSBs in sweet spot on easing bad debt load

New Delhi: Public-sector banks (PSBs) have raked in more profits in the three months ended June on the back of a persistent decline in bad loans and the trend may have a positive bearing on their balance sheets in the coming quarters.

In the June quarter, Bank of Maharashtra (BoM) and State Bank of India (SBI) were in the lowest quartile as far as Gross Non-Performing Assets (NPAs) and net NPAs were concerned, according to an analysis of the quarterly financial numbers published by the public-sector lenders. Cumulatively, all the 12 public-sector banks reported a profit of about Rs15,306 crore in the three months ended June, registering an annual growth of 9.2 per cent. However, leading public sector lenders -- SBI and PNB -- posted lower profits in the June quarter.

During the April-June period of the previous fiscal, state-owned banks recorded a total profit of Rs14,013 crore. As per the analysis, the gross NPAs reported by BoM and SBI were 3.74 per cent and 3.91 per cent of their total advances, respectively, in the first quarter of the current fiscal. The net NPAs for these banks came down to 0.88 per cent and 1 per cent respectively, at the end of June.

Gross NPAs of other public sector lenders varied from 6.26 per cent to 14.90 per cent. In the June quarter, Bank of Baroda's gross NPAs stood at 6.26 per cent and it was 14.90 per cent for Central Bank of India, which is still under Prompt Corrective Action (PCA) framework of the Reserve Bank of India. Most of the banks' net NPAs were below 3 per cent of their respective total advances.

Only three lenders -- Union Bank of India (3.31 per cent), Central Bank of India (3.93 per cent) and Punjab National Bank (4.28 per cent) -- reported net NPAs of more than 3 per cent in the June quarter.

Narendra Solanki, head of equity research at Anand Rathi Shares & Stock Brokers, said,"NPAs have broadly reduced, resulting in lower provisions and better profitability. However, due to rising yields, Mark-to-Market (MTM) losses were also reported in treasuries which should get incrementally lower once the rate hike pace slows and finally ends." MTM losses occur when the financial assets held are valued by the market at a price lower than the purchase price.

"Largely, with declining provisioning and improving quality of books, the public-sector banks space is in a sweet spot to target growth in the coming quarters. Also, the ability to gather low cost deposits at scale is positive in current scenario," Solanki said. To improve the financial health of public-sector banks, the government has implemented a comprehensive 4Rs strategy -- Recognition of NPAs transparently, Resolution and recovery of value from stressed accounts, Recapitalisation of the banks, and reforms in the banks and the wider financial ecosystem.

As part of the strategy, the government has infused Rs 3,10,997 crore to recapitalise banks during the last five financial years -- from 2016-17 to 2020-21. Out of the total amount, Rs 34,997 crore was sourced through budgetary allocations and Rs 2,76,000 crore through issuance of recapitalisation bonds. Scheduled commercial banks recovered Rs 8,60,369 crore over the last eight financial years by way of resolution of the NPAs, as per official data.