MUMBAI, MAY 24
Losses of public sector banks (PSBs) for the quarter ended March 2018 are set to hit a record Rs 50,000 crore — more than double the losses of Rs 19,000 crore in the preceding quarter ended December 2017. The huge losses are a fallout of new Reserve Bank of India (RBI) norms scrapping all loan-restructuring schemes and will put pressure on the government to infuse more capital into public sector unit (PSU) lenders than planned earlier.
Of the 15 PSU banks that have announced their results, 13 have reported net losses and only two lenders — Indian Bank and Vijaya Bank — have reported profits. The consolidated earnings of the 15 lenders added up to losses of Rs 44,241 crore. The overall losses are likely to cross Rs 50,000 crore, considering that several large lenders — including IDBI Bank, Bank of India, Bank of Baroda, United Bank and Indian Overseas Bank — are yet to announce their results. Of all these, only Bank of Baroda had reported a profit in the preceding quarter.
ICRA senior vice-president & group head (financial sector ratings) Karthik Srinivasan said, “Despite recapitalisation, of the 15 PSBs that have declared their results for FY2018, tier-1 capital position reported by five PSBs is closer to minimum regulatory requirement of 7%.” The losses have been largely triggered by higher provisions for bad loans. According to a study by Care chief economist Madan Sabnavis, the ratio of non-performing assets (bad loans) to total loans had been stable in the range of 11-12% for the first three quarters of FY18, but increased sharply to 13.41% in the fourth quarter.
The dilemma for the central government would be reneging on its statement that it will be providing capital to only the well-performing banks. The lenders that are in need of capital are the ones that have a high level of bad loans. For instance, Allahabad Bank has core equity capital of below the statutory requirement of 7%, while four other lenders Punjab National Bank, Central Bank of India, Oriental Bank of Commerce and Andhra Bank are just above 7%.
ICRA’s Srinivasan said, “Though the banks are likely to emerge with cleaner asset quality, the Rs 650 billion of capital infusion budgeted by the government for FY2019 may well turn out to be inadequate. The ability of the PSBs to meet regulatory capital ratios and, consequently, their credit ratings, will remain highly dependent on them being able to raise capital from the markets. If the banks are unable to raise capital from the markets, the government will be required to augment its share of capital infusion during FY2019.”
MUMBAI, MAY 24