PSU bank asset quality yet a concern

Rohit Joshi and Siddharth Tak/ZRG

As against a stable performance by many private sector banks, top public sector banks witnessed deterioration in their asset quality during fiscal 12-13. An improvement is likely since bankers are keen to say worst is over.

A Zee Research Group (ZRG) study of data furnished by banks to stock exchanges shows that PSU banks have seen huge increase in non-performing assets (NPAs) during FY13.

For instance, in case of Punjab National Bank (PNB), the gross and net NPA (NNPA) as a per cent of advances has increased by 1.34 per cent and 0.83 per cent respectively on YoY basis. In absolute terms, while gross NPAs at PNB rose by 54.4 per cent to Rs13, 466 crore, net NPAs’ have increased by 62.5 per cent to Rs 7,237 crore.

Further, GNPA and NNPA of UCO Bank have increased by 1.94 per cent and 1.21 per cent on YoY basis to 5.42 per cent and 3.17 per cent respectively. Moreover, GNPA and NNPA of Allahabad Bank have increased by 2.09 YoY and 2.21 per cent respectively. The ratios have also seen an increase at Canara Bank where they increased by 84 basis points (bps) YoY and 72 bps YoY to 2.57 per cent and 2.18 per cent respectively. The figures for leading public sector bank-State Bank of India (SBI) are awaited.

In contrast, many private sector banks have witnessed an improvement in asset quality in FY13. In case of HDFC Bank, GNPA as a per cent of advances declined to 0.97 per cent in FY13 from 1.02 per cent in FY12. Similarly, GNPA of ICICI bank has declined to 3.22 per cent in FY13 from 3.62 per cent in FY12. Furthermore, Kotak Mahindra Bank and Yes Bank have reported a decline of 1 bps and 2 bps respectively.

Explaining the rationale behind the deterioration in asset quality of public sector banks, Vaibhav Agrawal, Banking Analyst at Angel Broking opined, “NPAs of public sector banks are majorly coming from the corporate sector and PSU banks have more exposure to the corporate sector. At the same time, private sector banks have significant exposure to retail business and in retail loans the asset quality is yet reasonably good.”

Reiterating the view, Keki Mistry, vice-chairman and CEO, HDFC Limited, averred, “Slowdown in industrial activity and delay in projects offtake are the major reasons for the higher NPA situation in India. However, once the economic growth starts picking up then automatically NPAs will come down in the Indian Banking system.”

Rejecting the comparison made between the asset quality of public and private sector banks, SL Bansal, CMD at Oriental Bank of Commerce (OBC) argued, “It is not correct to compare a private sector bank with a public sector bank as the business model of a private sector bank is altogether different. The public sector banks, by nature are directly lending money to priority sectors like agriculture, SMEs etc and they suffer the most whenever there is pressure on cash flows. Normal NPA in the priority sector is more than 5 per cent and it contributes the most to the NPA levels of the public sector banks. However, this type of portfolio is not there in case of the private sector banks and they are mostly lending to the retail segment. All the big infra projects were initially funded by public sector banks and a period of economic slowdown affects the cash flows of the concerned parties.”

According to Spark Capital report, the top 10 restructured sectors from asset perspective in September 2012 were Iron & Steel (24 per cent), Infrastructure (10 per cent), Construction (8 per cent), Textiles (7 per cent), Telecom (5 per cent), Fertilizers (4 per cent), NBFC (4 per cent), Sugar (4 per cent), Cement (3 per cent), Shipping (3 per cent), Others (28 per cent).

Similarly, a recent report from CRISIL stated, “CRISIL’s portfolio witnessed 404 defaults in 2012-13 as against 188 in 2011-12; the default rate reached 4.7 per cent surpassing the 10-year high of 3.4 per cent in 2011-12. Textile, steel, and capital goods sectors accounted for around one-third of defaults. The defaults were primarily on account of weak liquidity due to stretched working capital cycles.”

Commenting on the same, Agrawal at Angel Broking said, “Within the industrial sector, Metal& Mining and Textile sectors are the prominent contributors to the rising NPAs.”

Referring to the outlook related to NPAs, Bansal at OBC said, “In the next 6 -9 months, things will stabilize by that time and going forward NPA will start falling. However, it all depends on economic environment. It is for sure that the current position is much better than what it was in September 2012.”

Supporting the thought of Bansal, Agrawal at Angel Broking asserted, “Worst has already been seen and we are seeing some stability coming in but major improvement would be possible only after the economy starts reviving more significantly.”

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