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Loan loss cover for govt banks dip amid rising NPA

Private lenders still maintain healthy provisioning

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Amid rise in non-performing assets, most public sector banks have seen substantial drop in their provision coverage ratio in the last one year – since the time Reserve withdrawn the 70 per cent provision coverage ratio norm. Private sector banks, on the other hand, where the pressure on asset quality was far less, maintained a healthy provision for their bad assets.

Provision coverage ratio refers to the ratio of outstanding provision to gross NPAs and higher provisioning deplete the bottomline of banks.

“With a few exceptions, majority of government banks have reported a sequential decline in their provision coverage ratio, while private sector banks have fared better. This has been one of the areas of concern regarding public sector banks, in our view,” said Saday Sinha, vice president, Equity Research, Kotak Securities.

Most PSBs have reported PCR less than 70 per cent during the second quarter this year. Earlier, Reserve Bank of India (RBI) had mandated banks to have a minimum 70 per cent PCR but withdrew the norm in September 2011 as asset quality pressure on banks started taking a toll of their profitability.

According to bankers, the pressure on bad assets were far more acute for public sector banks which has resulted in lower overall provisioning. According to data, gross for public sector banks increased to 3.3 per cent as on end March 2012, from 2.4 per cent a year ago, while for private lenders, the ratio has actually declined to 2.1 per cent from 2.5 per cent during the same period.

State Bank of India, the country’s largest lender, reported lower provision coverage ratio for the second straight quarter which stood at was 62.78 per cent as compared to 68.10 per cent as on March end. had reported 30 per cent profit growth in the second quarter. According to RBI data, provision coverage ratio for public sector stood at 47.6 per cent as on end March 2012 as compared to 49 per cent a year ago, while for private sector lenders it was 74.9 per cent as compared to 74 per cent during the same period.

Private banks are consistently maintaining PCR of above 70 per cent even if there is no regulatory compulsion on the banks to maintain PCR.  For instance largest private lender ICICI Bank had PCR of 78.7 per cent at the end of September quarter while second largest had PCR of 82 per cent.

 Both banks have reported a healthy profit growth with ICICI Banks net profit rising 30 per cent to Rs 1,956 crore while HDFC Bank’s net also rose 30 per cent to Rs 1,560 crore.

 HDFC Banks gross NPA was also reported at 0.91 per cent which was lesser year on year by six basis points when PSBs reported rise in gross as well as net NPAs while ICICI Banks net NPA was 0.66 per cent in September quarter.

Dhananjay Sinha, Emkay Global Financial Services said “the the asset quality and yield on assets is far better for the private banks compared to PSBs and also their capital adequacy ratio which is better that PSBs enables them to provide more towards bad assets while maintaining the net profit growth.”

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