NPAs fall, but banks not out of woods

HYDERABAD : The bad loans beast unleashed in late 2015 has knocked both public and private sector banks off course. Three years after the RBI’s asset quality review, banks are yet to fully recognise NPAs and make suitable provisions. Public disclosures indicate that the bad loan cycle peaked in March, 2018 and according to Care Ratings, falling NPA ratios indicate that banks have more or less recognised all toxic loans, though some need a closer vigil for at least two quarters. 

Based on past data, only two PSBs have NPA ratio of less than 10 per cent — Vijaya Bank (5.86 per cent) and SBI (9.95 per cent) —  while remaining banks have higher ratios, IDBI the highest at 32 per cent. NPA ratio peaked during the quarter ended March, 2018 at 10.16 per cent. This was when the highest quantum of NPAs were recognised and the trend saw some moderation subsequently.

Out of 30 lenders, both public and private, which have announced second quarter (Q2) results so far, 13 saw a reduction in NPA ratio in the last two or more successive quarters. But, eight banks saw lower bad loan ratios in Q2 than Q1, while another 8 saw it increase.

“While it cannot be said with any certainty that declining NPA ratios in Q2FY19 indicate a turnaround, a thumb rule can be that two successive quarters of declining NPA ratio can give confidence that it will not increase in coming quarters,” Care ratings noted.

Meanwhile, owing to mounting bad loans, public sector banks (PSB) losses have been widening. For Q2, cumulative losses of 21 PSBs stood at `14,716 crore, over three times that registered a year ago at `4,284.45 crore.

However, on a sequential basis, losses narrowed by about `2,000 crore from `16,614.9 crore reported during the previous quarter. The combined losses had stood at an alarming `62,681 crore at the end of the last fiscal. The obvious reason for widening losses is because of higher provisioning.