The banking sector finally reported a collective net profit of £15.4 million in the quarter ended December 2019 - the first since the RBI’s last February circular that forced lenders to recognise delinquent loans as nonperforming assets. The aggregate results of banks entered the green zone have been with private banks improving their profits, while public sector banks (PSBs) paring losses. In the preceding second quarter of FY19, banks had reported a net loss of £394.3 million and £670 million in Q1.
Collective losses of 21 PSBs, which dominate lending, shrank to £1.16 billion in the third quarter from £1.47 billion in the second quarter and £1.66 billion in the first. The number of PSBs that have reported a net profit has increased from seven in the second quarter to 11. Ten PSBs continued to be in the red with IDBI Bank topping the list with its net loss of £418.5 million. The highest profit among PSBs during the quarter was generated by SBI (£395.4 million).
The 18 listed private banks reported a total net profit of £1.18 billion - an increase of 8.8% over £ 1.08 billion in the second quarter. In the private sector, Lakshmi Vilas Bank and IDFC Capital First were the only two private lenders to report a net loss. Of these two, IDFC Capital First’s £153.8 million loss was due to one-time merger related costs. HDFC Bank’s £558.5 million net profit for the quarter accounted for half of the private sector’s total profit. ICICI, Axis and Kotak Mahindra Bank too reported net profit in four figures.
A year-on-year comparison of bank profits does not give the correct picture as it was only after the February 12, 2018, circular that banks took a concerted effort to providing for bad loans. In the third quarter of FY17, banks had reported aggregate profit of over £1 billion. Bank profits would have been better in Q3 but for the provisioning that many lenders had to make towards IL&FS. Barring IL&FS, there is indication that the tide is turning as far as bad loans are concerned. Last week, a survey conducted by the Indian Banks’ Association and Ficci indicated that most banks see bad loans coming down. According to the survey, majority (54%) of reporting PSBs cited a reduction in NPA levels, with only 38% showing an increase. Further, in the current round of survey, none of the respondent banks has cited an increase in the requests for restructuring of advances. While 39% have stated a fall in number of such requests, 61% have reported no change in the number of such requests.
While not many new loans are turning bad, heavy provisions towards existing NPAs continued to be a drag on the profits of banks. For PSBs, the total provisions for the quarter stood at £5.23 billion, while for private banks it was £3.12 billion. In the public sector, barring SBI, Indian Bank and Vijaya Bank, all lenders have their NPA ratios in double digits.