Bad loans weigh on PSU banks as growth falters

 A comparatively higher rate of loans slipping into non-performing assets and restructuring of loans impacted the asset quality of the public sector banks.



State-run banks remained under stress in the December quarter as high interest rates and the economic slowdown continued to bog down corporate borrowers. While this led to a deterioration of the banks' asset quality, higher provisioning expenses and muted loan and deposit growth impacted profitability. 

Five of the biggest state-controlled lenders — 
State Bank of India BSE 0.80 %, Bank of Baroda BSE 0.06 %, Punjab National Bank BSE 0.53 %, Canara Bank BSE -0.48 % and Bank of India — together witnessed a 14 per cent growth in loans and 13 per cent growth in deposits in the third quarter. The net interest margin, the yield on advances over cost of deposits, declined about 30 basis points, compared with the year-ago period. 

All these factors weighed on the net interest income of these banks, which grew a marginal 2 per cent taken together. While 
SBI BSE 0.80 % reported a 3 per cent decline in net interest income, BOI reported a 12 per cent jump, the highest among the group. A comparatively higher rate of loans slipping into non-performing assets and restructuring of loans impacted the asset quality of the public sector banks. 


The aggregate restructured advances of the PSU banks saw a substantial 72 per cent jump in the third quarter. PNB BSE 0.53 % and BoB were the worst affected, recording 84 per cent and 76 per cent rise, respectively, in restructured loans. Fresh non-performing assets remained high, with SBI reporting fresh slippages of Rs 8,165 crore in the third quarter, mostly from the mid-corporate and SME sectors. However, PNB surprised positively with an almost 50 per cent drop in its gross slippages from the earlier quarter. 

Due to higher delinquencies, the provisioning cost for the third quarter rose 12 per cent, hurting the net profit of the PSU banks. The rise was the highest for BOI at 32 per cent, followed by Canara Bank with 25 per cent. However, after four consecutive quarters of increase in provisioning, PNB showed a decline as net slippages after accounting for upgrades and recoveries remained flat. 

PNB had seen a substantial rise in provisioning in the previous two quarters. The increase in provisioning, together with lower net interest incomes, resulted in a combined 1 per cent drop in the net profit of the five major PSU banks. 

While the net profit of BOB fell 21 per cent that of PNB rose 14 per cent due to lower provisioning.