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The vanishing NPAs

Banks are back on the high growth path with healthier bottomlines. But public sector banks – the king of the heap – faltered on profits, reports B G Shirsat

First the good news. After more than a decade, the Kolkata-based United Bank of India (UBI) paid dividends to its shareholders after reporting Rs 204.57 crore net profit. The Chennai-based Indian Bank also followed suit, riding high on its Rs 500 crore-plus bottomline.

The net and gross non-performing assets (NPAs) as a percentage of advances have also come down for all commercial banks. In the public sector, only Dena Bank now has over 3 per cent net NPAs. Four others – Central Bank of India, Bank of Maharashtra, Punjab & Sind Bank and Uco Bank – have 2-3 per cent NPA levels. As many as 13 public sector banks have less than 1 per cent NPAs.

Only three banks’ net NPAs have risen during the year, that too marginally. For instance, Punjab National Bank’s net NPA rose from 0.20 per cent to 0.29 per cent and that of Vijaya Bank’s from 0.59 per cent to 0.85 per cent. In the case of State Bank of Indore, the net NPA level has almost doubled from 1 per cent to 1.83 per cent, but on a very low base.

The picture is more or less similar in the private banking segment. Seven of them have less than 1 per cent net NPAs and another eight between 1 per cent and 2 per cent. Development Credit Bank has the highest level of bad loans at 4.50 per cent. At least five private banks, including IndusInd Bank, have more than 2 per cent NPAs.

While bad loans indicate the health of the banks, the bottomline growth has actually signalled a upturn in their performance. Buoyed by retail loan growth, the banking sector posted 16.84 per cent growth in net profit against 9.14 per cent decline in 2004-05, which was marked by a reversal in the interest rate cycle.

Now the bad news. Public sector banks remained a drag with just 5.57 per cent growth in net profit. In contrast, private banks’ average net profit rose by over 41 per cent and that of foreign banks by 54.76 per cent.

Nine public sector banks reported a drop in net profits and, in some cases, the slide was very sharp. At least five of them saw a second successive drop in net profit growth in as many years. These are Andhra Bank, Bank of Maharashtra, Central Bank of India, Oriental Bank of Commerce, UCO Bank, United Bank India, Union Bank, Vijaya Bank and State Bank of Bikaner & Jaipur.

For some, the drop in net profit growth was very sharp. For instance, Bank of Maharashtra’s net profit was down from Rs 177 crore in 2004-05 to Rs 51 crore in 2006-06.

In the case of Vijaya Bank, it was down to Rs 127 crore from Rs 381 crore. Central Bank and United Bank of India have also reported a substantial drop in their bottomlines.

For Central Bank, it was a big drop from Rs 357 crore to Rs 257 crore, while United Bank of India’s bottomline slipped from Rs 300 crore to Rs 205 crore.

Continued to next page

HOME    Business Standard • November 2006