Six PSBs’ bottom line hit as bad loans mount in (Q4)


Weighed down by stressed assets and provisions, the bottom line of six public sector banks came under pressure in the fourth quarter (Q4) of FY16. Five of them, including Bank of Baroda (BoB), posted a net loss while Union Bank of India reported a fall in net profit in the March 2016 quarter.BoB, the largest among them, reported a loss of Rs 3,230 crore in the quarter under review compared with Rs 598 crore profit in the same period a year ago.Kolkata-based UCO Bank also posted a massive net loss of Rs 1,715 crore in Q4 of FY16, against a net profit of Rs 209 crore in the same quarter in FY15. Sequentially, the net loss swelled by 15 per cent from Rs 1,497 crore in Q3 of FY16.

Another lender that recorded loss in Q4 was Allahabad Bank, at Rs 581 crore, against Rs 203 crore profit reported in the same period a year ago. The loss was contained because it saw a tax write-back of Rs 1,033 crore in Q4, against a tax expense of Rs 175 crore.Mumbai-based Dena Bank posted a net loss of Rs 326 crore in Q4 against a net profit of Rs 56 crore in the year-ago period. Central Bank of India posted a net loss of Rs 898 crore in the quarter compared with a net profit of Rs 174 crore in Q4 of FY15. On the other hand, Union Bank managed to report a net profit of Rs 96 crore, though this was down 78 per cent from a year before.

The dent in the bottom line for all these lenders is the result of the increase in bad loans and higher provisioning for this. Non-performing assets (NPAs) in the quarters ended December 2015 and March 2016 also shot up as a result of the asset quality review initiated by the Reserve Bank of India (RBI). As a result of this exercise, lenders were asked to recognise bad assets on their balance sheet and make adequate provisioning over Q3 and Q4.

BoB’s provisions for NPAs grew three-fold four-fold, to Rs 4,880 crore compared to Rs 1,491 crore in the fourth quarter of FY15. Besides making regular provisions by RBI norms, it has set aside extra amounts (Rs 2,900 crore) to improve provision coverage ratio (PCR) from 52.7 in December 2015 to 60.09 per cent in March 2016.”This was done to strengthen the balance sheet and also feedback from analysts who treat private banks as its peer. It aspires to improve PCR to 68 per cent in FY17,” said P S Jayakumar, BoB’s managing director and CEO. In the same period, UCO Bank’s provisioning jumped to Rs 2,345 crore. Allahabad Bank saw its provisioning almost quadruple to Rs 2,487 crore, from Rs 631 crore a year ago. Union Bank’s rose 55 per cent to Rs 1,565 crore, from Rs 1,010 crore a year ago.

BoB’s gross NPAs increased to almost 10 per cent of the total at the end of Q4, from 3.72 per cent in the same quarter a year before, and from 9.68 per cent in Q3. In absolute terms, gross NPAs increased to Rs 40,521 crore at the end of Q4, from Rs 16,261 crore a year ago.UCO Bank’s gross NPAs touched a record high of 15.43 per cent in Q4; it was 6.76 per cent in Q4 of FY15. Net NPAs were 9.09 per cent (4.3 per cent in Q4 of FY15). In absolute terms, Rs 20,908 crore in Q4, from Rs 10,265 crore a year before. Net NPAs were Rs 11,444 crore in Q4, up from Rs 6,331 crore in the same quarter of FY15.UCO faces a more serious challenge than other lenders because if the net NPA of a bank is 10 per cent (and less than 15 per cent), some RBI-imposed restrictions set in. These include limitation in entering new lines of business, making dividend payments and increasing stake in subsidiaries, and a special drive to contain NPAs.According to a senior official at UCO Bank, the increase in NPAs and net losses was on account of lower advances and higher provisioning, a part of balance sheet cleaning. “We think 2016-17 will be a year of consolidation. Moreover, our advances have come down significantly, which led to a higher percentage of NPAs. Our provisioning has also increased,” said the official.

Similarly, the net NPAs of Allahabad Bank at the end of Q4 were 6.76 per cent (3.99 per cent in Q4 of FY15), while gross NPAs were 9.76 per cent (5.46 per cent in Q4 of FY15). Union Bank’s NPAs rose to 8.7 per cent, from 4.96 per cent a year ago.Despite these numbers, the managements are optimistic that FY17 will be better. Asset quality pressure has stabilised, according to Jayakumar of BoB. The lender expects to report growth and profitability in 2016-17. It expects to expand the loan book by 10 per cent in FY17. Loans stood at Rs 3,83,770 crore. This belief that the worst is behind us was also reiterated by Arun Tiwari, chairman of Union Bank. “The March 2017 results will be better on all quality parameters,” he added.

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