The Q1FY19 results do make us believe that Q4FY18 was the worst ever quarter for Indian commercial banks in terms of pain in their profit and loss, slippages, etc.
However, this quarter saw the creation of two new downside records.
First, the Allahabad Bank is now qualified under Risk Threshold 2 in terms of capital risk under Prompt Corrective Action (PCA) of Reserve Bank of India (RBI) Second, it’s the first time ever that gross non-performing assets (NPA) of a commercial bank in India, i.e. IDBI Bank has exceeded the 30 percent level.
On the positive side, slippages for the banks have declined sharply by 60 percent or more on an average.
Losses for the banking sector declined massively by 88.2 percent quarter-on-quarter (QOQ) to Rs 6,503 crore against Rs 55,085 crore QOQ.
PSU (public sector undertakings) banks’ losses have declined by 73.5 percent QOQ, while private banks reported profit growth of 33.2 percent QOQ.
The banking sector as a whole saw a decline in gross NPA by 2.2 percent QOQ in absolute value, while gross NPA ratio declined by 38 bps QOQ.
Another surprise is that gross NPA of PSU banks declined by 2.6 percent QOQ in absolute value, while their gross NPA ratio improved by 33 bps despite a sharp decline in their loan book.
However, in absolute value, gross NPA of private banks increased by 0.5 percent QOQ, but due to healthy loan growth around four percent QOQ saw a decline in gross NPA ratio by 16 bps QOQ.
PSU banks continued to strengthen their balance sheet with provision coverage ratio, which aided the overall provision coverage ratio (PCR) of banking industry, rising to 51.6 percent from 43.7 percent year-over-year (YoY) and 49.5 percent QOQ.
This PCR is without taking into account technical write-offs. The loss of Rs 6,503 crore for the banking sector is the lowest loss in the past three quarters. PSU banks have reported a loss of Rs 16,622 crore, which is the lowest in three quarters.Private banks have reported a profit of Rs 10,119 crore among the lowest in the past few quarters, barring the immediately preceding quarter.
PSU Banks Report Lowest Quarterly Net Loss In Three Quarters
PSU banks have reported a net loss of Rs 16,622 crore against Rs 62,681 crore, down 73.5 percent QOQ. They have reported net losses for eight quarters out of the last 11 quarters totaling to Rs 1,33,838 crore.
This was on the back of recovery from National Company Law Tribunal (NCLT) cases and lower QOQ slippages.
However, loan growth remains muted for them and they continue to lose their market share to private banks.
PSU banks have lost market share of 709 bps or 7.09 percent in last 11 qtrs. PSU banks market share now stands at 67.5 percent in Q1FY19 against 74.6 percent in Q3FY16.
The gross non-performing assets (GNPA) in absolute value has decreased to Rs 8.74 lakh crore in Q1FY19 against Rs 9 lakh crore in Q4FY18.
They have been more prudent in improving their provision coverage ratio. The core provision coverage ratio (i.e. provision coverage ratio without technical write off) has improved for PSU banks from 41.3 percent in Q3FY16 to 51.2 percent in Q1FY19, up 989 bps.
Despite having the extra burden of treasury losses and elevated provisions, the net loss for PSU banks declined by 73.5 percent QOQ.
PSU bankers have said that they expect further recovery from NCLT list 1 accounts in Q2FY19. The profitability of PSU banks was also hit on account of higher provisions for gratuity and pension.One of the best things to happen in this quarter despite all the bad results, residual stress in the balance sheet is down to single digits (as % of the loan book). This is perhaps the lowest ever residual stress in the balance sheet of PSU banks over the last 3-5 years.
Surprisingly, the share of prompt corrective action banks (11 PSU banks) in GNPA has reduced QOQ due to rise in recovery and lower slippages.
The PCA bank’s share in the overall gross NPA has increased to 39.7 percent against 39.3 percent QOQ.
However, due to shrinkage in their balance sheet, their credit book market share has declined to 18 percent against 18.8 percent QOQ.
In absolute value, their GNPA has declined by 1.7 percent QOQ to Rs 3.47 lakh crore. Their loan book stood at Rs 15.25 lakh crore, down 3.4 percent QOQ.
Private Banks Witness Rise In Gross NPA
The net profit for private banks was at Rs 10,119 crore, down 15.7 percent YoY but up 33.2 percent QOQ.
The worrying factor amongst private banks was that they didn’t see a decline in the absolute value of gross NPA QOQ.
Gross NPA was at Rs 1.3 lakh crore, up 0.5 percent QOQ. The good part is that they continue to gain mkt share on the back of strong loan growth, which has also enabled them to make higher provisions and improve their net NPA.
Loan growth was at 3.9 percent QOQ, which led to better income for private banks. Net NPA of private banks was at Rs 59,100 crore, down 7.1 percent QOQ.
ICICI Bank reported a net loss for the first time. Some of the negative surprises in private bank results came from the likes of ICICI Bank, Axis Bank, Federal Bank, YES Bank and Ujjivan SFB.Positive surprises came in from Karnataka Bank and Bandhan Bank.
Slippage Analysis of Corporate Banks
Overall, the top banks, both PSU and private, saw slippages decline by 63 percent QOQ to Rs 55,711 crore against Rs 150,775 crore.
Slippages declined by 62.7 percent QOQ for PSU banks to Rs 41,973 crore from Rs 112,639 crore; while it declined by 64 percent QOQ for private banks to Rs 13,738 crore from Rs 38,136 crore QOQ.
Slippages increased for HDFC Bank and YES Bank QOQ; while for all others, it declined sequentially.
The highest slippages were seen in the cases of State Bank of India and Punjab National Bank.Lowest slippages were seen in Kotak Mahindra Bank, Federal Bank and IndusInd Bank. Highest increase in slippages were seen in Yes Bank and HDFC Bank. While sharpest decline in slippages was seen in Punjab National Bank, ICICI Bank and Axis Bank.