The fourth quarter of fiscal year 2021 saw banks report asset quality with COVID-19 impact of last year. Slippages remained elevated, restructuring increased, credit cost rose and profitability impacted. Credit cost may remain elevated due to the fact that many banks have witnessed a sharp decline in the coverage ratio, which needs to be strengthened and also, impact from the second wave needs to be seen as well.
The silver lining is that the worst of the corporate cycle may now be behind us and public sector banks have reported lower gross non-performing assets (GNPAs) and healthy profit growth compared quarterly. However, market share-wise there was a slip due to risk aversion and lower capitalisation than their private counterparts.
Compared to other quarters, write-offs were pretty high in Q4FY21. This was on account of the fact that bank’s recognised NPAs from the first lockdown that took place last year. This also goes onto show that recovering small retail and SME loans was tough for banks. Another point to factor in for high write-offs is that it helps in lowering stress on the future capital level of the banks. Many banks have been proactive in raising funds before announcing their Q4FY21 results.
From the data below, the lowest write-offs i.e. write-offs as percent of slippages have been for CSB Bank, Punjab & Sind Bank and DCB Bank. The highest write-offs as percent of slippages have been for Axis Bank, YES Bank, Central Bank of India and UCO Bank COVID-19 impacted slippages, for H2FY21, were the highest reported by PNB, SBI and Canara Bank.
Write off, Rs cr
Slippage, Rs cr
AU Small Fin Bk
Karur Vysya Bank
Kotak Mah Bank
South Indian Bank
Punjab & Sind Bank
City Union Bank
Bank of Baroda
Bank of India
Union Bank of India
Bank of Maha
Central Bank of India
Overall, the banking sector saw a decline in their profits on a sequential basis due to interest on interest reversal & elevated provisions. The sector saw an increase in stress due to the COVID-19 impact of last year with GNPA rising 10.3 percent QoQ & NNPA rising 45.8 percent QoQ. The faster rise in NNPA than GNPA was due to the fact that the core provision coverage ratio of the banking sector declined from 79.2 percent in Q3FY21 to 69.1 percent in Q4FY21.
Many banks like Kotak Mahindra Bank and others saw their core provision coverage ratio decline to 70 percent. Banks would see credit cost remain slightly elevated in FY22 as they improve their provision coverage ratio to 70 percent plus. Loan growth slowed down to +5.6 percent YOY in Q4FY21 but was at +3.8 percent QoQ for the system. Loan growth could remain tad on the weaker side in Q1FY22, due to various state’s lockdown, before picking up by festive season.
Banks (Rs cr)
The outperformance in the banking sector on a sequential basis was led by PSU banks. Not only did they report ~30 percent QoQ rise in profits, but their GNPA increase was also in single digits despite taking into account the impact from the first wave of COVID-19. PSU banks GNPA increased by 6.4 percent QOQ when compared to +28.9 percent QoQ for private banks.
On the weaker side was their loan growth, sub 2 percent YOY & QoQ. Some of the banks have raised capital recently.
Asset quality of PSU banks increased marginally, with GNPA at 9.63 percent vs 9.21 percent QoQ.
PSU Banks (Rs cr)
Private banks have underperformed to PSU banks in Q4FY21. Especially on profits which declined by ~21 percent QoQ. The elevated provisions & interest on interest impacted their profitability while loan growth remained better than industry growth rates. Loan growth for private banks was at +9.5 percent YOY & +4.6 percent QoQ. They continued to gain market share on the back of weak growth in PSU banks & stronger capitalization. Asset quality saw massive deterioration with GNPA rising to 4.19 percent vs 3.4 percent QoQ. In absolute value, their NNPA rise was at +91.6 percent QoQ when compared to +37.6 percent QoQ for PSU banks. Their core provision coverage ratio declined to 69.1 percent when compared to 79.2 percent reported in Q3FY21.
Pvt Banks (Rs cr)
(Edited by: By Aditi Gautam)
First Published: IST