The top public sector banks in the country — State Bank of India, Punjab National Bank, Canara Bank, Bank of India and Union Bank of India — have seen further deterioration in asset quality in the April-June quarter, with slippages across sectors.
SBI, the country’s largest lender, has seen a staggering Rs 10,800-crore slippage in the first quarter, which has increased the gross non-performing asset to Rs 47,000 crore, or 4.9 per cent of gross advances against 3.52 per cent a year ago.
Though the SBI management was confident about a year back that NPAs have peaked, the gross NPA figures have touched a record high after declining marginally in the fourth quarter. SBI expects to bring down the gross NPA ratio, which in absolute terms may reach the Rs 50,000-crore mark during the year.
“Slippages for PSBs increased 50 per cent QoQ (annualised slippage ratio of 3.4 per cent versus significantly higher than 2.2 per cent a quarter ago). Absolute slippages was higher than 2QFY12 levels (which was impacted by system-driven NPA recognition) in some cases,” Motilal Oswal Securities said in a recent report.
Apart from retail and small and medium enterprises, slippages from the agriculture segment continue to remain high for SBI. Analysts expected SBI focusing more on profit growth would reduce its provisioning coverage ratio further.
ICICI Securities has revised the target price of SBI as it expects slippages to remain high, coupled with “conscious focus on reporting strong profits which leads to lower NPA coverage”. SBI’s provisioning coverage ratio dropped to 64 per cent on June-end from 68 per cent reported in end-April.
Similarly, some of the other public sector lenders, such as Bank of India, have also seen its provision coverage ratio decline. BoI’s gross NPAs rose Rs 858 crore in three months to Rs 6,751 crore at the end of June 2012, with SME and corporate segments contributing the most. Its provisions coverage ratio dipped to 60.86 per cent at the end of June from 64.14 per cent in March.
The ICICI Securities note said the top 50 accounts contributed only 32 per cent of the Rs 10,800 crore in slippages in Q1FY13, indicating the granular nature of slippages.
The report by foreign broking firm Credit Suisse has highlighted concentration risk for Indian public sector banks as 20 per cent on the incremental loan in 2011-12 was given to top 10 groups, including Adani, Essar, Reliance ADA, Vedanta and Videocon, among others.
“We believe the concentration risk is high as all banks appear to have high exposure to the same few groups and investments of most of these groups are in similar sectors and projects (primarily, power and metals) and many of them may be stressed,” the Credit Suisse report said.
According to the report, in terms of the concentration risk to the top groups or to the top borrowers, Indian banks rank much higher compared with most of their Asian and BRIC counterparts. “Single-borrower or single-group limit for Indian banks akin to other markets and prudential exposure limits in India cap individual borrower exposure at 15 per cent of net worth and group exposure at 40 per cent of net worth of the banks,” it said.
Interestingly, private sector lenders ICICI Bank and HDFC Bank have fared well, as their growth in non-performing asset, on sequential basis, was flat. While public sector banks are likely to face the pressure of loan recast in the coming quarters, analysts note than private banks’ loan portfolios would remain healthy. SBI, for example, sees Rs 3,000 crore loans which will require restructuring in the current quarter.
“Going forward, restructuring is expected to increase, led by restructuring of some large-mid corporate accounts under CDR. Private banks’ asset quality is expected to remain healthy due to lower restructured loans, lesser proportion of direct agricultural loans and better risk management,” the Motilal Oswal report said.
According to Reserve Bank of India data, public sector banks burnt their fingers most in terms of loan restructuring, while foreign banks have actually seen a dip in the ratio of restructured standard advances to gross advances, while private sector banks have seen a marginal increase.