Small finance banks suffer net loss in June quarter as provisions surge

The four listed small finance banks (SFBs) — AU, Ujjivan, Equitas, and Suryoday — reported a combined net loss of Rs 66 crore in the June quarter of financial year 2021-22 (Q1FY22) because of a sharp rise in provisions amid the second wave of the pandemic.

In comparison, the SFBs had reported a profit of Rs 340 crore in Q1FY21 and Rs 375 crore in Q4FY21. Of the four, Ujjivan and Suryoday booked losses of Rs 233 crore and Rs 48 crore, respectively, in Q1. Reflecting the impact of Covid on asset quality, the provisions — incl­uding those for bad and rest­ructured loans — rose nearly twofold to Rs 912 crore in Q1 from Rs 444 crore the previous year. The SFBs had made provisions of Rs 302 crore in Q4.
 
Gross non-performing assets (NPAs) of the SFBs — which predominantly lent to households, individuals, and small businesses — rose from Rs 1,103 crore in Q1FY21 to Rs 4,0­68 crore in Q1FY22. Sequent­ially, bad loans were up from Rs 3,610 crore in Q4.
 
Recoveries were hampered as many borrowers lost their livelihood and those who had money preferred to hold on to it to tide over the pandemic. This resulted in a rise in slippage. Net NPAs rose from Rs 439 crore in June 2020 to Rs 1,683 crore in June 2021.
 
Sequentially, there was very little addition over Rs 1,634 crore in March 2021 as SFBs hiked provisions. The limited incr­ease shows in coverage rat­io for bad loans on the books. Bankers said Covid-19’s impact was more pronounced on the retail and small business segments.

Loan disbursals were hit by lockdowns in Q1, which also impacted interest income and loan book expansion. Net interest income grew by 12 per cent to Rs 1,693 crore in Q1 from Rs 1,512 crore last year, and from Rs 1,530 cro­re in Q4. Advances grew by 17 per cent YoY to Rs 69,835 crore in June 2021. However, they shrank sequentially from Rs 71,860 crore in March 2021.
 
Extending small loans is contact intensive, which was disturbed during the second wave. With the easing of cu­rbs, credit offtake saw gradual uptick in July 2021. The SFBs’ deposits rose by 36.3 per cent YoY to Rs 69,444 crore in Q1. Seque­ntially, they grew 3.5 per cent from Rs 67,115 crore in Q4.