Government-owned banks, forced to accelerate the clean-up of their books in the final quarter of FY18, have reported losses in excess of Rs 50,000 crore, shows earnings data compiled by BloombergQuint. Banks have been recognising and providing for bad loans for the last two years now but the process was speeded up due to a tougher stressed asset framework put in place by the Reserve Bank of India in February.
The result has been that most public sector banks have reported large losses for the quarter ended March 2018.
For the 17 listed PSU banks which have reported earnings till Friday, the total net loss stood at Rs 53,000 crore compared with a net loss of Rs 4,302 crore in the same quarter last year. Most banks took some reprieve through tax write-backs which helped reduces losses to some extent.
All but two small public sector banks—Indian Bank and Vijaya Bank—reported a net loss for the fourth quarter. The largest quarterly losses have been reported by Punjab National Bank (Rs 13,417 crore), State Bank of India (Rs 7,718 crore) and IDBI Bank (Rs 5,663 crore). Four public sector banks, including Bank of India, are yet to report quarterly numbers.
Private banks fared better than public sector lenders but they too saw a dip in aggregate net profits. The total net profit of this set of lenders stood at Rs 7,203 crore, a decline over the same period last year.
Among the private banks, Axis Bank was one of three lenders to report a net loss of Rs 2,189 crore. Lakshmi Vilas Bank and Dhanlaxmi Bank reported small losses as well.
Bad loans continued to rise with additions coming from sectors like power, where banks have delayed recognition of stress. For the 32 lenders that have reported earnings, gross non performing assets stood at Rs 8.77 lakh crore at the end of the March quarter.
Also most banks saw an increase in slippages due to the RBI’s February 12 circular. While introducing a host of new rules, the circular withdrew all existing stressed asset schemes and told the banks that accounts where these schemes were in the process of being implemented should be marked as NPAs. This added to slippages across banks.
NPA ratios rose across most banks. IDBI Bank reported the highest gross NPA ratio of 27.95 percent, followed by Uco Bank (24.6 percent) and Dena Bank (22 percent).
A bigger hit came on account of increased provisions which doubled over the previous quarter to Rs 1.29 lakh crore.
Most banks saw a sharp rise in provisions as they set aside more money to cover for existing bad loans and fresh slippages. As bad loans age without resolution, the proportion of money that a bank needs to set aside rises.
The hit would have been worse if the RBI had not provided two relaxations. The regulator allowed banks to spread mark-to-market losses on the bond portfolio over four quarters. It also allowed lenders to reduce the provisioning amount against cases in the NCLT to 40 percent from 50 percent earlier. Some lenders used the relaxation while others did not.
The jump in provisions means that most of the funds infused into public sector banks in FY18 would be used up, without leaving much scope for growth capital. Last year, the government had announced a recap package of Rs 2.11 lakh crore. Of this, about Rs 90,000 crore was infused in FY18 and the remaining is due to be allocated this year.