Big Banks Show Rise in Bad Debts AND Fall In Profits

All big banks which were considered as best banks till a few years ago are slowly exposing their hidden bad assets and smaller banks are still not ready to expose entire bad debts. Banks like Punjab National Bank, Canara bank,Indian Bank, United bank,Bank of India, Bank of Baroda, and Allahabad Bank has seen rise in gross Nonperforming Assets and fall in profit. Some banks even succeeded in hiding bad assets and thus showing rise in profits.

I have no doubt that slowly Gross NPA of all banks will cross 10 percent of total advances and may reach even upto 20 percent if all banks honestly applies RBI prudential norms for classification of advances and income recognition. If banks which have exhibited rise in profit are cross examined by perfect honest bankers giving enough time, I think truth of these banks will also precipitate crystal clear.

A lot of bad assets created by corrupt top officials will come to surface only when they quit or retire from the services of their bank. No power on earth can trap these clever bank officials who are expert in having good 'setting' with auditors and officials of Reserve bank of India and that of Ministry of Finance. No accountability is fixed against top ranked officials. It is only junior level officers and middle management officers who are answerable for sanction of loan to small and medium size borrowers are taken to task.

Cobrapost can expose and reveal the irregularities committed by banks in compliance of KYC norms but cannot detect the irregularities in sanction of loans or that in quality of existing assets which are treated by bank as standard and safe though they are unsafe.

Cobrapost or any inspecting officials cannot detect fraud in making provision or in promotion process of the bank. Even if Cobrapost like detective agencies get success in exposing the evil deeds of banks, there is no guarantee that politicians of same breed will ever accept to it and act upon such reports. Cobrapost cannot stop rise in fraud volume in banks caused by  fall in quality of bank officials dealing with bank transactions and because of lack of enough safety measures.

Crores of rupees are spent on offering gifts to auditors and in welcoming team of auditors and high rank officials of the bank. Banks hesitate to consider rise in perquisites of JMO and MMO and do not want to spend on wage hike but may spend unlimited money on court cases and on top ranked officials or on renovation of branches or on opening of new branches and ATM which again gives scope of underhand dealings.

As such it is not justice and proper to imagine of good health of public sector banks until politicians of this country become honest and create healthy work culture and politicians immediately stop corrupt culture of flattery and bribery, nepotism, casteism, regionalism and communalism. 

As long as regulators are dishonest , non performers and unwilled, the reign of certificate and good banners will continue to play foul game with common men, investors, taxpayers, customers and finally bank staff too. If a banker furnishes certificate that they are complying all rules and regulations, it is assumed safely be regulators as also ministers that every think is OK in banking or in financial sector.

Bank of Baroda, Bank of India profits decline, miss estimates-Livemint

Most state-run banks are reeling under a higher burden of bad loans as growth slows

Anup Roy

May 14 2013. 12 23 AM IST

Mumbai: Government-owned lenders Bank of Baroda (BoB) andBank of India (BoI), both based in Mumbai, on Monday registered a drop in their net earnings for the quarter ended 31 March after setting aside more money to cover an increase in bad loans.

Most state-run banks are reeling under a higher burden of bad loans as slowing economic growth, estimated at a decade’s low of 5% in the year ended 31 March, high borrowing costs, and projects stalled because of delayed government clearances make it difficult for borrowers to repay debts.

The fall in net profit was sharper at BoB at 32% in the January-March quarter, missing analyst estimates, to Rs.1,028.85 crore from Rs.1,518.18 crore in the year-earlier period. A poll of analysts by Bloomberg had estimated profit at Rs.1,060 crore. Provisions rose to Rs.1,598 crore from Rs.844 crore.

BoB wrote back tax of Rs.483 crore in the March quarter compared with a Rs.322 crore write-back in the corresponding period last year. But for the tax write-back, BoB’s net profit would have dropped further.

BoI reported a 21% slide in its net profit to Rs.756.57 crore from Rs.952.73 crore in the year earlier, missing the Bloomberg estimate of Rs.847 crore.

Its provisions, mainly on bad loans, more than doubled to Rs.1,510.63 crore from Rs.701.78 crore. Gross non-performing assets (NPAs) rose to 2.99% of total loans from 2.34%. Slippages, or good loans turning bad, in the quarter amounted to Rs.1,677 crore, against Rs.5,401 crore in the year ago quarter.

In the quarter, the bank had to write off Rs.1,286 crore of its loans against Rs.2,414 crore in the year ago quarter.

The provision, according to Emkay Research, was “significantly higher” but was partially offset by other income at Rs.1,090 crore and a tax write-back of Rs.192 crore in the quarter. BoI, too, would have shown a sharper drop in net profit had there been no tax write-back.

BoI shares lost 4.35% to close at Rs.324.25 on Monday on BSE and BoB lost 1.82% to Rs.691.85, even as the bourse’s benchmark index, Sensex, lost 2.14% to 19,691.67 points and the banking index, Bankex, fell 0.02% to 14,377.11 points.

BoB’s gross non-performing assets rose to 2.4% of total loans from 1.53% in the year earlier. In the December quarter, the bank had a gross NPA ratio of 2.41%.

The bank witnessed fresh slippages in the quarter of Rs.2,083 crore. Out of this, Rs.1,200 crore of slippages happened in its domestic portfolio, while Rs.883 crore was on account of its international book, mainly in Dubai. The bank had recorded a slippage of Rs.1,604 crore in the December quarter.

BoB had to write-off Rs.1,036 crore of loans in its domestic portfolio and Rs.194 crore in its international book in the fourth quarter. About half of the fresh slippages are due to large corporations and the rest are on exposure to small businesses, the bank said.

The bank restructured Rs.2,843 crore of loans in the fourth quarter against Rs.5,280 crore in the year-ago quarter. For the full year, the bank restructured Rs.7,666 crore of loans.

In the first quarter of the current fiscal, BoB expects to restructure Rs.2,500 crore worth of loans.

According to S.S. Mundra, the bank’s chairman and managing director, the asset quality could have deteriorated more sharply had the bank not been proactive in addressing the slippages.

“We had a complete focus on asset quality. In the fourth quarter, those have been quite comprehensively addressed and there has been a considerable impact on our domestic book,” said Mundra, adding that domestic NPAs will stabilize in a quarter or two.

The bank will refocus on growth in fiscal 2014, he said. It plans to rebalance its lending portfolio, focusing more on agriculture, small and medium enterprises, while it will go a little slow on lending to the corporate sector.

The bank expects to expand its loan book and deposit base by 1.5-2 percentage points above the industry average as it wants to “avoid aggression as the economy is still in the recovery mode”, the bank’s presentation said.

“BoB continued to witness asset quality deterioration, as its gross and net NPA levels were sequential higher by 9% and 25%, respectively. Consequently, the provisioning expenses for the bank almost doubled on a year-on-year (y-o-y) basis, leading to profit before tax level earnings decline of 54% y-o-y (year-on-year),” said Vaibhav Agrawal, vice-president, research, Angel Broking Ltd.

“However, higher tax write-backs during the quarter limited the net profit decline to 32%,” Agrawal said.

The bank’s net interest margin (NIM), or the difference between yields on advances and the cost of funds, for its global operation fell to 2.51% from 2.96% in the year-ago quarter and 2.65% in the third quarter.

BoI’s global NIM was at 2.46% against 2.86% in the year ago quarter and 2.36% in the December quarter.

According to the bank’s chairperson and managing director V.R. Iyer, the level of bad assets at the bank has largely stabilized, but stress will continue in the prevailing weak economic conditions. The bank has a restructuring pipeline of Rs.515 crore in the first quarter of the current fiscal.

“We are monitoring our stressed assets portfolio, doing sensitivity analysis, and hope bad assets would be under check in the coming quarters. However, we cannot commit on a number given the volatile economic conditions,” Iyer said at a press conference to discuss the bank’s results.

“Asset quality stress is visible, but as the economy picks up, we expect the stress to come down. We are seeing stress in textiles, steel, chemicals, infrastructure and services,” she said, adding that these sectors made up to 70% of the bank’s NPAs.

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