StatsGuru-06-January-2014

Decoding why India's public sector banks are in trouble

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It has been clear for some time that public sector banks are in trouble. At the very least, they are not doing as well as their private sector counterparts. Look at Table 1. While public sector banks do well in terms of revenue per employee, profit per employee is low and declining, as is return on assets. Unsurprisingly, the market prices public sector banks much lower than it does private sector banks. Most worryingly, the ratio of net non-performing assets (NPAs) to total liabilities has soared, while private banks have brought it down.

Which banks are poor performers in terms of NPAs? Table 2 provides the answer, and also those that are doing well - the latter dominated by private players like HDFC Bank. Table 3 is a selection of changes in NPA ratio in basis points; big public sector banks like SBI and Allahabad Bank have struggled.

SBI's gross and net NPA ratios, visible with some peers in Table 4, shows a sawtooth pattern. This reflects a pattern of behaviour where new bank chairmen "clean up" their predecessors' mess, but conceal bad loans under their own tenure. Note many NPA ratios do not include the heavy debts of some highly indebted corporate groups, listed in Table 5. The size of those debts, when compared to the gross NPA totals listed in Table 4, are instructive. Finally, Table 6 shows the percentage change in selected bank stocks this financial year. The market is clearly worried about public sector banks.