The Indian banking sector is back in the red in the fourth quarter with a £2.08 billion loss, thanks to provisioning for bad loans. Banks, in 2017-18, had reported a massive £8.5 billion loss as Reserve Bank of India's circular of February 2018 forced lenders to make provisions for bad loans and clean up their books.
Crisil had forecast in October 2018 that PSU banks would reduce their losses to £5 billion after their clean-up. Default crisis broke out in the IL&FS group, since then, where banks have a £5.4 billion exposure. They also had to make provisions on loans of close to £800 million to Jet Airways. Several banks also had to make provisions on Reliance Communications, part of Anil Ambani group, which had come under stress this year.
All these accounts resulted in fresh slippages for banks, increasing from the previous quarter for the first time this year. Finally, some of the big ticket recoveries under the first list of companies referred to insolvency at the behest of the RBI failed to materialise. Eventually, public sector banks reported a collective loss of £3.09 billion in the fourth quarter, the highest during the year.
Corporation Bank, IDBI Bank, Punjab National Bank, Union Bank and Allahabad Bank accounted for 75 per cent of all losses. Private banks reported a net profit of £1.01 billion in the fourth quarter, marginally lower than the £1.17 billion clocked in the preceding quarter. While most large private banks generated a profit, Yes Bank reported a surprise loss of £150 million.
For the whole financial year 2019, public sector banks reported a net loss of £7.29 billion with IDBI Bank leading the list at £1.51 billion. On the positive side, banks have started growing their loan books, reducing their bad loans through provisioning and have improved their capital position following a fund infusion by the government.
Meanwhile, some public sector banks exited the RBI's prompt corrective action (PCA) framework. These were Allahabad Bank, Bank of India, Corporation Bank, Oriental Bank of Commerce and Dhanlaxmi Bank. Dena Bank, another lender under PCA, ceased to exist as it merged with Bank of Baroda.