When State Bank of India, the country’s largest bank and a bellwether for the financial sector, on Friday reported a rise in gross bad loans rose during the April-June quarter, it confirmed a growing apprehension — Indian banks are still not out of the woods.
SBI’s gross NPAs in the April-June period went up by 44 basis points to 6.94%, against 6.50% in the previous quarter, and 6.67% in the same period last year. Net profit fell 32% to Rs 2,520.96 crore during the quarter, against the year-ago.
Along with its five associate banks, the SBI Group reported a 78% fall in first-quarter net profit at Rs 1,046 crore, compared to the year-ago period.
Shares of SBI, however, rose 7% on the BSE on Friday as investors took courage from chairman Arundhati Bhattacharya’s statement that fresh additions to the bad loan tally may not prolong. The positive market sentiment also pushed up the stock.
On August 11, Bank of Baroda’s first quarter net profit fell 60% due to a large provisioning made for loans, which the bank fears, may not be serviced. BoB’s provision more than doubled to Rs 1,986 crore. Bank of India, another large state-run bank, said its bad loans rose 4% during the quarter. On Friday, Oriental Bank of Commerce also reported a rise in provisions against bad loans to Rs 750.40 crore during April-June, from Rs 577.65 crore a year-ago. For Central Bank of India, provisions doubled to Rs 1,543.66 crore, from Rs 580.75 crore in the year-ago period.
The situation at all the banks underscores the continued rise in bad loans, despite active measures by the government and the RBI. This would call for immediate recapitalisation, more than the Rs 22,900 crore recently suggested by the government.
“Asset quality trends continue to remain very weak,” said Parag Jariwala, vice-president, Religare Markets. Bank of Baroda expects higher NPAs in the MSME and agriculture segments, he added. “That is a matter of concern. We believe that in the second-quarter gross NPA will go up by 6% to 10%.”
Indian banks (private and public sector) have been burdened by a bad-loan tally of around ₹6 lakh crore, brought on due to huge corporate borrowings, which could not be serviced as an overriding slowdown post 2011 affected abilities to generate revenue.
“We had said that the worst is behind us with the last quarter, but obviously it will not get shut off like a tap…it will slowly recede. The resolution piece is more difficult to predict at this point,” said SBI’s Bhattacharya. “If you have seen the watchlist, around Rs 3,000 crore has slipped from it. Of the entire slippage of Rs 8,790 crore, close to Rs 4,122 crore is from the national banking group, which is retail assets.”
On Friday, ratings firm Fitch revised the outlook on the Indian banking sector to negative from stable due to the bad loan pile-up, and after Dhanlaxmi Bank failed to pay a coupon on a subordinated debt instrument in July 2016.