Pvt lenders score over state-run banks on asset quality

Amid fears of high interest rates deteriorating the health of bank loans in the coming quarters, private banks appear to have managed the quality of their assets better than their state-run rivals.

According to industry analysts, system-based recognition of non-performing loans, fresh slippages in the farm loan portfolio and a higher share of restructured assets in total loans have weakened the asset quality of government-owned banks.

“Clearly, there is a divergent trend in the asset quality of public sector banks and private banks. Public sector banks are moving from an outdated technology to a system based non performing asset recognition. This is not the case with private banks,” said Suresh Ganapathy, head of financial research, Macquarie Securities.

Public sector lenders like Bank of Baroda, Bank of India, Canara Bank and Union Bank of India, which have already declared their first quarter earnings, reported higher accretion of non-performing assets compared to private sector banks like Axis Bank, HDFC Bank, Kotak Mahindra Bank and YES Bank.(Click here for graph)

In the April-June period, Bank of India accounted for slippages worth Rs 1,700 crore, or 3.9 per cent of the loans, compared with delinquencies of 2.4 per cent in the previous quarter, while for Union Bank of India, slippages rose to Rs 7,700 crore from Rs 400 crore in the previous quarter.

Higher provisioning, owing to the deteriorating asset quality, capped the growth in earnings of most public sector banks during the quarter.

India's largest commercial bank, State Bank of India's (SBI) net profit plunged 99 per cent year-on-year in the fourth quarter of the last financial year, as the bank had to make more provisions due to the deteriorating health of its loan book. The bank is yet to announce its financial performance for the quarter ended June 30.

“Non-performing asset accretion would possibly accelerate in the rate-sensitive sectors (in the coming quarters). Real estate, education and vehicle loans could be affected,” SBI Chairman Pratip Chaudhuri told reporters on Tuesday after RBI had raised key policy rates for the eleventh time in the last 16 months.

While the high interest cost is likely to hit the asset quality of banks, private sector lenders appear more confident in tackling the crisis. “The outlook on our asset quality is fairly stable,” Paresh Sukthankar, executive director, HDFC Bank, had said while announcing the banks' earnings earlier this month. The country’s second-largest private sector bank had reduced its provisions to Rs 444 crore in the April-June period from Rs 555 crore a year before due to the improving asset quality. The bank's gross bad loan ratio rose 17 basis points, while net non-performing asset ratio declined by 10 basis points during the quarter.

Analysts said the decision of private banks to slow lending about a year back has also contributed to maintaining the health of their loan books. According to these banks, the stress on the asset quality of public sector banks would be more severe than that on their private counterparts, at least for another quarter.