NIMs also saw a contraction across most banks due to a decrease in lending rates and rigid deposit rates.
Report cards of public sector banks reflect a drop in profits in the January-March quarter, but this has not come as a complete surprise, say industry experts. For, a subdued economic situation continued to make loan recovery difficult.
Profits across 24 public sector banks, which have reported results, have fallen about 18% on-year, as net non-performing assets or NPAs jumped 56%. However, the deterioration in asset quality slowed down from the October-December quarter as net NPAs inched up only 5% in the last three months.
“Profitability came on expected lines because net interest margins (NIMs) have come down and asset quality has been quite poor throughout the year,” said Vaibhav Agrawal, an analyst with Angel Broking.
State-backed banks, which have larger exposure to the large corporate sector, have been more affected by the economic slowdown than their private sector counterparts (which reported a 25% growth in profit).
Exceptional items like provisions for investment depreciation and wage hike also eroded profitability.
The worst performing banks in the January-March quarter were State Bank of Mysore, Allahabad Bank, Uco Bank and Dena Bank: their profits more than halved. India’s largest lender State Bank of India is slated to report results later this month.
Loan growth also remained muted with very little demand on the corporate side. Net interest income across the 24 state-backed banks grew only 5%. The banks tried to reduce exposure to risky sectors and focused more on retail lending. Several banks, including Punjab National Bank, shrunk their balance sheets.
NIMs also saw a contraction across most banks due to a decrease in lending rates and rigid deposit rates.
“We would not see things getting worse. It will take, maybe, another two quarters before there is a drastic improvement in asset quality. Things are stabilising,” said Agrawal.
Experts said a lot now depends on the how the economy behaves. “Everything boils down to the economy. If the economy does not improve, cases of debt restructuring will go up and bad loans will also climb,” said an analyst with a foreign brokerage.
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