New Delhi (13.08.2021): For PSBs, bad days continue in FY22, streaming from FY21. They have no option but to manage somehow the non-performing loans (NPLs) - largely from the MSMEs, retail, and farmers. For the June quarter FY22, Punjab National Bank has set aside as much as 77% of its operating profit to take care of defaults and for restructuring loans. Similarly, the Bank of Baroda (BoB) has earmarked 72% of its operating profit to overcome the stress. For the June quarter, the PSBs on the whole are said to have set aside more than 60% of their aggregate operating profits to cater for loan losses and restructured assets. This is an indication the stress on lenders’ books remains fairly high. Private sector banks, too, are stressed. Their average earmarking of operating profits for the June quarter tots up to about 50%. PSBs have to make these adjustments in their books even as the loans growth in the June quarter averaged 3.6% year-on-year versus the growth of total advances in FY21 of 2.5%. Smaller PSBs like UCO Bank, Indian Bank, and Indian Overseas Bank have reportedly provided more aggressively out of their profits compared to their larger peers. Data from Capitaline shows that for 12 PSBs the allocation of funds from operating profits for meeting loans defaults and restructuring averaged 63% while for a group of 18 private banks, the share was 49%. However, one silver lining seems to be that absolute provisions in the June quarter fell year-on-year. The NPL shock may further narrow the opportunity for smaller public-sector banks to raise resources through their preferred capital-raising route - Additional tier 1 (AT1) bonds. If the stress continues unmitigated, there will be a lot of skepticism in the market about buying these bonds.
Bad days continue for PSBs
By IndianMandarins - 2021-08-13 09:59:00
New Delhi (13.08.2021): For PSBs, bad days continue in FY22, streaming from FY21. They have no option but to manage somehow the non-performing loans (NPLs) - largely from the MSMEs, retail, and farmers.
For the June quarter FY22, Punjab National Bank has set aside as much as 77% of its operating profit to take care of defaults and for restructuring loans.
Similarly, the Bank of Baroda (BoB) has earmarked 72% of its operating profit to overcome the stress.
For the June quarter, the PSBs on the whole are said to have set aside more than 60% of their aggregate operating profits to cater for loan losses and restructured assets. This is an indication the stress on lenders’ books remains fairly high.
Private sector banks, too, are stressed. Their average earmarking of operating profits for the June quarter tots up to about 50%.
PSBs have to make these adjustments in their books even as the loans growth in the June quarter averaged 3.6% year-on-year versus the growth of total advances in FY21 of 2.5%.
Smaller PSBs like UCO Bank, Indian Bank, and Indian Overseas Bank have reportedly provided more aggressively out of their profits compared to their larger peers.
Data from Capitaline shows that for 12 PSBs the allocation of funds from operating profits for meeting loans defaults and restructuring averaged 63% while for a group of 18 private banks, the share was 49%.
However, one silver lining seems to be that absolute provisions in the June quarter fell year-on-year.
The NPL shock may further narrow the opportunity for smaller public-sector banks to raise resources through their preferred capital-raising route - Additional tier 1 (AT1) bonds. If the stress continues unmitigated, there will be a lot of skepticism in the market about buying these bonds.
