Higher provisions for bad loans still bleed balance sheets of banks
HYDERABAD: State Bank of India, the country’s largest bank, has returned to profitability after three quarters. But make no mistake, the lender’s return to profitability was nudged by a one-time gain from the sale of investments in its general insurance business and merchant banking business, and not necessarily because the bad loan muck is all done and dusted.
The public sector behemoth continues to park a significant sum towards the mistakes of the past. The saving grace, though, is that SBI’s slippage ratio stood at 2 per cent — the lowest in six quarters. Also, the bank’s retail and SME portfolios need its pulse checked, considering the steady increase in provisions.
Interestingly, the watch list (accounts likely to turn bad) among public sector banks in the quarter gone by has more or less subsided, though the central bank’s stringent provisioning norms continue to bleed their balance sheets. For instance, scam-hit Punjab National Bank’s losses shot up to Rs 4,532 crore for the September quarter, driven solely by higher provisions (at Rs 7,733 crore, up from Rs 4,982 crore during the June quarter). Bankers and the government have been batting for relaxed norms, but the RBI remains reluctant.
“The real strength will come from recognising weaknesses in the balance sheet and making provisions for them rather than pretending to believe that the balance sheet is strong,” argued N S Viswanathan, Deputy Governor, RBI, last week. The Finance Ministry has blamed RBI for not wielding the regulatory stick in the past, as a result of which total bank credit shot up from Rs18 lakh crore in 2008 to Rs 55 lakh crore by 2014. This high decibel credit growth led to an increase in bad loans, the correct picture of which was reflected after the asset quality review in 2015, when NPAs shot up from Rs 3,23,464 crore as on March 2015 to Rs 10,35,528 crore as on March 2018.
Despite shrill cries from the banks and the government to relax norms, economists are backing the RBI’s stand. “Being traditionally more conservative helps in withstanding crisis, and early recognition of the problem entails timely corrective measures,” noted Sowmya Kanti Ghosh, Chief Economic Advisor, SBI Research.