Profitability of PSBs under stress

State-run banks' profitability in the first three months of this financial year have remained under stress. A rise in bad loans, higher provisioning and loss on sale of investments have dragged down their earnings growth. Four public sector banks - Allahabad Bank, Indian Bank, Punjab National Bank (PNB) and UCO Bank - announced their first quarter earnings on Friday. Of these, two reported year-on-year decline in their profit after tax; the other two saw moderate growth in net profit.

Punjab National Bank
PNB said its net profit for the quarter ended June increased by 10 per cent from a year earlier to Rs 1,405 crore. However, there was a sharp rise in non-performing assets (NPAs). The gross bad loan ratio deteriorated to 5.48 per cent from 4.84 per cent a year earlier, while its net NPA ratio was up four basis points to 3.02 per cent at the end of the quarter.

"NPAs continue to engage our attention in the current environment. An improvement in economic situation will probably help us better our asset quality. We are hopeful that our next NPA number will be better," said K R Kamath, chairman and managing director, in his post-earnings comments.

UCO Bank
Kolkata-based UCO Bank saw its April-June net profit rise only two per cent over a year, to Rs 521 crore. While the lender was able to improve its asset quality, lower treasury income and higher tax provisions limited its earnings growth.

"We have been conserving capital, acquiring assets cautiously and focusing on the retail banking business. We have been improving our asset quality for the past few quarters. But a drop in profit on sale of investments impacted our operating profit. Also, the bank coming out of the purview of MAT (Minimum Alternate Tax) and having to pay Rs 163 crore income tax in the quarter impacted our net profit," said Arun Kaul, chairman and managing director.

Allahabad Bank
Allahabad Bank's net profit fell 73 per cent from a year earlier to Rs 113 crore. "One large account, of Rs 400 crore, slipped into NPA during the quarter. Also, we had to make Rs 460 crore provisions against one account, which is a standard asset for us but has become an NPA for other consortium lenders. These factors resulted in a decline in our net profit," Rakesh Sethi, chairman and managing director, told Business Standard.

Indian Bank
Chennai-based Indian Bank saw its net profit fall 35 per cent to Rs 207 crore during the quarter. T M Bhasin, chairman and managing director, said in the corresponding period of previous year there was an 'exceptional gain' of Rs 314 crore, reduced to 36 crore in the first three months of this financial year. "In the next quarter, as the market conditions improve, we would be able to perform better on this count," he said.