Government lenders stressed but investors hopeful.... The stress on profitability continues for most public sector banks (PSBs) as they struggle to cope with a rise in assets turned bad, in the current uncertain macroeconomic environment. The higher cost of funds, with a cascading effect on margins, and the absence of trading profits further capped their earnings growth in the second quarter. However, investors seem convinced the worst in terms of asset quality deterioration is over, leading to a sharp rise in banking stocks. Four state-run lenders – Allahabad Bank, Bank of Baroda (BoB), Bank of India (BoI) and Union Bank of India (UBI) – announced their second quarter earnings on Thursday. The shares of these banks gained 7.4-22.7 per cent in Thursday’s trade. The largest among these, BoB , saw its July-September net profit shrinking 10 per cent from a year earlier to Rs 1,168 crore, as it made higher provisions and incurred more expenses. On a yearly basis, provisions and operating expenses increased 33 per cent each. Besides non-performing assets (NPAs), the proposed revision of employee wages also contributed to the rise in provisions. Yet, BoB’s senior management is confident that asset quality stress will abate in the coming quarters. “Slippages have shown a downward trend, with Rs 1,600 crore slipping in the second quarter. This is lower than the first quarter (slippages of Rs 1,800 crore),” said S S Mundra, chairman and managing director. He expects the net interest margin (NIM) to improve in the second half of 2013-14 from the current 2.85 per cent, as the lender has started shedding its high-cost bulk deposits. BoI reported a strong performance, more than doubling its second quarter net profit to Rs 622 crore from a year before. It recovered Rs 346 crore from written-off accounts, compared to Rs 167 crore a year earlier. “The bank reported better than expected numbers on both the operating and asset quality front. On the latter, not only did the bank witness sequentially lower slippages but also reported much better recoveries and upgraded performance. Given the macroeconomic challenges, the sequential increase in gross bad loans during the quarter is much lower as compared to peer banks,” said Vaibhav Agrawal, vice-president for research–banking at Angel Broking, in a note to clients. BoI shares gained as much as 22.7 per cent on Thursday, to close at Rs 211.95 on the National Stock Exchange. Allahabad Bank’s net profit increased 17.8 per cent from a year earlier to Rs 276 crore, as it sold stressed loans to asset reconstruction companies (ARCs). Higher interest income and a rise in fee income also helped it improve on profit after tax. “We have sold assets worth Rs 732 crore, which are fully provided for, to ARCs during the quarter. Against these, the bank has received Rs 350 crore. It contributed to a 130-per cent rise in our other income. We will continue to explore opportunities to sell stressed assets,” said Shubhalakshmi Panse, chairperson and MD. While credit quality did deteriorate further, the pace of fresh bad loan additions decelerated. Fresh slippages were Rs 1,199 crore in July-September, compared to Rs 1,719 crore a year earlier. The banks stock was up 13.4 per cent in Thursday’s trade. UBI was the worst affected among the four, with the second quarter’s profit after tax declining 62.5 per cent from a year before, to Rs 208 crore. The growth in net interest income was flat, around 5.6 per cent on a yearly basis, as lower lending rates impacted the banks margin. Its NIM was 2.67 per cent. “The profit has declined due to higher provisions towards NPAs. Additional bad loan provisions during the quarter were Rs 300 crore, said D Sarkar, the CMD. Provisions for standard assets more than trebled from a year before, to Rs 172 crore, as the bank had to follow the new norm of higher provisions for standard restructured assets. Still, the earnings performance did not deter investors from buying shares. The stock rose 7.4 per cent on Thursday. “There was huge pessimism about PSBs second quarter performance. BoB and UBI’s profits, though these declined, were higher than what was expected by the market. Asset quality pressure has continued and higher provisions have impacted profit growth,” said Saday Sinha, analyst with Kotak Securities.
Posted on: Fri, 01 Nov 2013 16:20:03 +0000
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