Public sector banks' woes continue to mount in view of private peers outperforming them during the second quarter this fiscal.
While private sector banks continue to deliver good results, public sector units (PSU) have disappointed on earnings front along with deteriorating asset quality in the second quarter of the current fiscal (Q2FY13).
PSU banks have posted huge gross non-performing assets (GNPAs) in Q2FY13. Even RBI Governor D Subbarao accepted that level of banks’ NPA is disturbing. Link (http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=2602)
A Zee Research Group (ZRG) analysis shows that PSU banks have seen huge increase in non-performing assets (NPAs) during the quarter under review as against the first quarter of the current fiscal (Q1FY13). For instance, in case of Punjab National Bank (PNB), the gross and net NPA (NNPA) as a per cent of advances has increased by 1.32 per cent and 1.01 per cent respectively on sequential basis (quarter-over-quarter). In absolute terms, while gross NPAs rose by 40 per cent to Rs14,024 crore, net NPAs’ have increased by 60 per cent to Rs7,883 crore.
Further, GNPA and NNPA of UCO Bank has increased by 100 basis points (bps) QoQ and 71 bps QoQ to 4.88 per cent and 2.94 per cent respectively. Moreover, GNPA and NNPA of Allahabad Bank has increased by 99 bps QoQ and 101 bps QoQ to 2.95 per cent and 2.1 per cent respectively. Even, GNPA and NNPA of SBI has increased by 16 basis points (bps) QoQ and 22 bps QoQ to 5.15 per cent and 2.44 per cent respectively.
Explaining the rationale behind the deterioration in asset quality, SL Bansal, CMD, Oriental Bank of Commerce (OBC), said, “The major reason is that economy is not doing well. Earlier, GDP was growing at 8 to 9 per cent as against the current growth of 5.5 per cent. Naturally, in such a situation cash flows would be under stress and because of that parties are suffering. Moreover, high interest rates have added to woes.”
Rajiv Mehta, banking research Analyst at India Infoline averred: “High interest rates and the global economic slowdown have led to deterioration in the asset quality of PSU banks in India.”
Another school of thought came from P Jayaram Bhat, managing director, Karnataka Bank (a private sector bank), who asserted, “It depends on the individual portfolio of banks. As the economy is not growing, corporates are finding it difficult since their projects are not taking off.”
Throwing some light on the intricacies related to the NPA woes of PSU banks, Bansal at OBC, affirmed, “Few assets are facing problems due to certain regulatory clearances like in case of power projects there is an uncertainty whether that project has the requisite coal linkages with itself or not. Other large accounts are suffering because of the increasing interest rates as economy is not doing well. Steel, Real Estate and Textile are some sectors which are going through tough times.”
On the contrary, most of the private sector banks have witnessed an improvement in asset quality in Q2FY13. In case of HDFC Bank, GNPA as a per cent of advances declined to 0.91 per cent in Q2FY13 from 0.97 per cent in the previous quarter. Similarly, GNPA of Axis bank has declined to 1.01 per cent in Q2FY13 from 1.06 per cent in Q1FY13. Furthermore, Development Credit Bank (DCB) and Karnataka Bank have reported a decline of 53 bps and 9 bps respectively.
Rejecting the comparison made between the asset quality of public and private sector banks, Bansal at OBC, argued, “Business model of private sector banks is different. Banks like HDFC or Axis don’t give huge money to infra projects and since they were late entrants they haven’t given loans to power distribution companies. All the public sector banks, by nature lend money to priority sectors like agriculture, SMEs etc and they suffer the most whenever there is pressure on cash flows.”
Reiterating the view, Vaibhav Agrawal, vice-president banking, research at Angel Broking, opined, “Pressure on SME’s profitability has negatively impacted the asset quality of the PSU banks in the India.”
Commenting on the outlook related to NPAs, Bansal at OBC, said, “Three months down the line interest rates are expected to fall. In the mean time, some large assets which have witnessed cost over runs may face problems. Therefore, Q3 remains a challenging quarter. However, improvement in asset quality can be seen from March onwards.”
Supporting the thought of Bansal, Mehta at India Infoline, said, “The asset quality concerns for the PSU banks are expected to persist for next couple of quarters.”
You must read following two articles of functioning of private and public sector banks to understand the reality of above point of view expressed by CEOs of various banks .
Public and Private Sector Banks
Reality of stimulus package is now visible; Fiscal deficit is increasing , trade deficit is increasing, current account deficit is increasing and GDP is coming down, IIP figure is coming down, rating of banks is coming down rating of country is at alarming position and so on ….Borrowing by government has been consistently increasing, public debt has reached to the level of 46 lac crores i.e. around 40% of GDP. Still government is allowing one after other subsidies to big corporates, exporters and importers.
Present Position of Public Sector Banks
Present position of public sector banks is like this:
Biggest bank called as State bank has become number one in Gross NPA. Second ranking bank PNB and BOB have become second in gross NPA and a bank called as best performing bank which was pioneer in change management and which was targeting to be number one among state run bank other than SBI is now number one in Gross NPA and number one in volume of restructured advances.
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