Worst may not be over yet for PSBs with regards to NPAs: CARE Ratings

Performance of banks continues to be stressed in Q3FY18 as revealed by a sample of 30 banks which includes 13 PSBs and 17 private banks, a CARE Ratings report mentions. Profits are under strain and the NPA issue continues to pressurise banks.

Growth in interest income in the last quarter was 8.9 per cent as against 2.3 per cent in interest expenditure. This may be attributed to a combination of higher growth in bank credit this year which was 10.7 per cent for the system compared with 4.7 per cent last year. Growth in deposits was lower at 4 per cent compared with 14.6 per cent, during the same period.  Net interest income (NII) has increased by 22.4 per cent against negative growth last year. This may be attributed to both higher growth in credit and lower decrease in lending rates compared with deposits which grew at a lower rate while deposit rates were lowered to a greater extent.

A major setback for banks was the decline in other income which is primarily due to the rise in yields on investments which affected profit and loss due to the market-to-market losses that were booked, adds the report. It may be pointed out that in December yields increased when the government announced an enhancement in its borrowing programme.

Provisions increased sharply by 69.1 per cent as against decline last year. Net profit growth declined to a loss from a profit position in Q3FY17. Gross NPAs continued to increase by 34.5 per cent in December quarter on top of 59.3 per cent last year. NPA ratio touched 9.45 per cent from 8.34 per cent in Dec 2016. It does appear that the NPA issue is still not sorted out at the macro level in terms of recognition as well as accretion.

The performance was driven mainly by the PSBs which witnessed a lower overall performance compared with private banks.

Private Banks maintained the Gross NPA ratio at 4.15 per cent over 2016 which was however higher than 2.51 per cent in 2015. "Private Banks also witnessed higher growth in both interest income and expenses while PSBs were affected more perceptibly by the decline in other income. PSBs witnessed higher growth in NII. Private banks have witnessed growth in net profit while PSBs have witnessed a loss of around Rs 11,000 crore as provisions were above Rs 51,000 crore," points out the report.

It does appear that the worst may not yet be over for PSBs with regards to NPAs and March 2018 would be the next touch point that will provide further guidance.