Until mid-day on Thursday, 11 February, 26 of the 39 listed banks had reported earnings. For this set of banks, the gross non-performing assets (NPAs) have jumped 27% between the September- and December-ended quarters toRs.2.72 trillion from Rs.1.90 trillion. Provisions have surged more than 72% quarter-on-quarter (q-o-q) for this set. (Note: A q-o-q comparison is more relevant in this case because it tells you the extent to which bad loans were under-reported and the inadequacy of provisioning. Both are now getting corrected following the RBI’s asset quality review.)
While the aggregate jump in bad loans is worrying enough, some of the mid-sized banks have reported real howlers. The country’s largest lender, State Bank of India (SBI), reported a 28% increase in gross bad loans between the third and fourth quarters and an 82% uptick in provisions. Profits fell 62%. Arundhati Bhattacharya, chairperson of SBI, warned that a further hit may need to be taken in the fourth quarter. However, Central Bank of India, Dena Bank, Allahabad Bank and Indian Overseas Bank, have all reported large losses as the increase in provisions completely wiped out profits. Punjab National Bank (PNB) managed to report a small profit because of tax write-backs. If not for that, it, too, would have reported a loss.
Among private sector banks, the big shock came from India’s largest private sector lender, ICICI Bank Ltd. It reported a 33% increase in gross NPAs between the September and December quarters. Its gross NPAs, as a percentage of total loans, is at 4.72%. What is worrying is that not all banks have taken the entire hit from RBI’s asset quality review in the third quarter, which means there will be more pain in the fourth quarter earnings.
Investors are worried about what is to come and have beaten down bank stocks mercilessly. But along with looking ahead, it is worth looking in the rear view mirror to remember what got us to this point and apportion blame appropriately.
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