Bank on trouble PDF Print E-mail
Saturday, 04 February 2012 00:00
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While there may be no reason to get alarmed just yet, the deterioration in asset quality seen in the quarterly numbers of several banks is of some concern. Restructured assets at Bank of Baroda (BoB), for instance, were up 27% sequentially in the three months to December 2011 and now account for 3.8% of the loan book. That share is expected to go up in the coming quarters, so it’s not surprising that analysts are paring earnings estimates by 3-4% for 2012-13. Punjab National Bank (PNB) was able to report only a 6% y-o-y increase in net profits in the December 2011 quarter, thanks to higher provisions for restructured loans. What shocked the Street was the quantum of provisions, at R840 crore, which turned out to be twice of what it had pencilled in. One reason why several banks have seen a jump in non-performing assets (NPAs) or more restructured loans in the December quarter is because they have chosen to recognise some airline assets as sub-standard. Corporation Bank is among those that have treated loans to Kingfisher Airlines as NPAs. Indeed, a third of the slippages of R950 crore at PNB materialised from the airline space. The trend may persist for a couple of quarters until the economy bounces back. The management commentary from ICICI Bank indicated that loan restructuring is yet to peak. That’s because there are couple of companies, such as GTL, which are in big trouble and to which banks have a big exposure. The other problem area is the power sector: Corporation Bank is understood to be mulling a restructuring of its loan to the Rajasthan State Power Distribution Company. Earlier last year, PNB had restructured a loan to the Tamil Nadu SEB. Now there’s the added problem of loans to telcos whose licences have been cancelled with the exposure estimates at around R10,000 crore for PSU banks. Again, rising agricultural loans is somewhat disconcerting but robust farm incomes should keep delinquencies in check.

If loan growth appears to be higher and somewhat out of sync with the muted 16-17% reflected in RBI data, it’s because some of it was driven by growth overseas as also by currency depreciation. So, the 26% y-o-y loan growth at BoB and the 21% y-o-y at Bank of India need to be seen in that context. At ICICI Bank, loans grew by just about 5% sequentially, with foreign loans growing at 18% over the September 2011 quarter. Again, most banks haven’t been able to push retail loans, though that is understandable given where interest rates are; most of the increase in assets has come from them extending more working capital finance to corporates. The star performer has been HDFC Bank, with its impeccable balance sheet and a rise in operating profits of a shade under 15% y-o-y. Unless the demand for loans picks up meaningfully and banks are able to command a good price for loans, margins could be a tad under pressure over the next few months as interest rates trend down and deposits are re-priced with a lag. Indeed, the SBI chairman has said it might not be so easy for banks to lower interest rates on deposits, given the competition from other savings products.

Last Updated ( Wednesday, 02 May 2012 08:56 )

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