The Reserve Bank of India (RBI)’s notification allowing banks some leeway on bad loan provisioning may provide them little succour, with many state-run lenders likely to report further losses in the fourth quarter.
Several chief executives told The Hindu that the RBI’s communication on Wednesday -- allowing banks to not classify some loans as non-performing -- provided relief only on smaller accounts which may not make any significant impact on profitability. Several banks that had reported a loss in the October-December period may fail to make a turnaround and are expected to post further losses in the March quarter.
“The central bank communication on Wednesday night did provide some relief, but there are only few accounts and the exposure in small,” said a chief executive of a public sector lender who had received the central bank’s communication.
A chief executive of another state-owned bank said some of the accounts where there would be some relief were Cobra Power, Pink City Expressway and Coastal Energen. The exposure on these accounts was not large.
RBI had conducted an asset quality review of public sector banks following which it had identified several accounts which banks were asked to classify as non-performing in two quarters, Oct-Dec and Jan-March.
Higher provisioning for bad loans resulted in many public sector banks like IDBI Bank, Bank of India, Indian Overseas Bank, Bank of Baroda reporting record losses in the third quarter. While most banks provisioned for 50 per cent of what was required to be provided in the third quarter, Axis Bank and Bank of Baroda made the entire provision at one go. Some of the banks which had to make the residual 50 per cent provisioning in the fourth quarter said they could post further losses.
Analysts expect private banks will report better earnings as compared to their public sector counterparts.
“Asset quality pressure will persist for the industry given much slower-than-expected recovery in economic activity,” brokerage IIFL said in a note to clients, previewing fourth-quarter earnings for the sector. “The dichotomy of high duress in corporate, agriculture and small and medium enterprises portfolios and relative resilience of the retail portfolio would also continue.” Bankers said the good news is that RBI is aware the economy is showing signs of revival, particularly in sectors like commercial vehicles and cement, and further asset quality reviews may not be on the cards.
