Overdue NPA provisions to hit banks hard in Q2

Many banks face erosion of entire quarterly profit as the Reserve Bank of India wants immediate cover for last year?s bad loans

Several large public sector banks may see their profits in the quarter ended September being eroded, with the Reserve Bank of India (RBI) asking banks to provide for last financial year’s bad loans in that quarter. During the annual inspection of banks’ books, RBI had found many banks had under-provided for bad loans in the last financial year.

According to banking sources, some banks may record Rs 500-600 crore of additional provisioning. In the quarter ended June, large public sector banks had reported net profits of Rs 500-Rs 1,250 crore. With a profit of Rs 3,752 crore, State Bank of India (SBI) was the only exception. The impact of the RBI move on SBI would be limited, as the bank has already made stringent provisioning. A senior SBI official said the bank, as well as its associate banks, was scheduled to make overdue provisions in the second quarter. “But the gap between what is provided and what RBI has pointed out is small,” the official added.

Though RBI carries out financial inspection every year, the process has been expedited from this year. Earlier, these inspections were carried out with a lag of 12-18 months. However, to ensure banks take corrective measures immediately, the banking regulator has now decided to complete the report of the previous year in the current year.
 

MOOLAH METER Net profit in FY12-13 Q1
	Rs crore
SBI	3,751.56
PNB	1,245.67
Bank of Baroda	1,138.86
Canara Bank	775.24
Bank of India	887.45
Union Bank	511.59
Source: Capitaline Compiled by BS Research Bureau

According to RBI data, non-performing assets (NPAs) have hit public sector banks the most, as these banks carried out the most debt recasts. Net NPAs of public sector banks rose from 1.09 per cent of net advances in 2010-11 to 1.53 per cent in 2011-12. For private banks, the ratio fell from 0.56 per cent to 0.46 per cent. For foreign banks, the it fell to 0.61 per cent in 2011-12.

Latest data shows the ratio of restructured standard advances to gross advances was highest for public sector banks. Till March, this ratio stood at 5.73 per cent for public sector banks, while for private and foreign banks, the ratios were 1.61 per cent and 0.22 per cent, respectively.