By Rajhkumar K Shaaw
Delinquent loans at Indian state banks are rising unabated.
Seven Indian state-owned lenders have reported a combined losses of 136 billion rupees ($2 billion) in the three months ended March 31. The latest was Punjab National Bank, which lost 53.7 billion rupees compared with a profit of 3 billion rupees a year earlier. Analysts in a Bloomberg survey had forecast an 857-million rupee loss. State Bank of India, the nation’s largest lender, will report earnings on May 27.
About half of India’s government-controlled banks, which account for more than 70 percent of the loans in the banking system, have reported delinquent-debt ratio of almost double the 5.1 percent of loans that were deemed non-performing among Indian lenders as of Sept. 30. Central bank Governor Raghuram Rajan, who has continually warned about hidden bad debt, started a national audit on Oct. 1, in a bid to improve disclosures of soured credit and force banks to set aside more cash to cover potential write-offs.
“The numbers show the extent of the NPA rot in the state-run banks,” said Chokkalingam G., managing director at Equinomics Research & Advisory Pvt. in Mumbai. “We are not recommending our clients to buy any state-run banks. We simply don’t know what the book is, so how do you value the bank?"
Punjab National Bank, the worst-performing stock in the S&P BSE Bankex index this year, gained 3.3 percent in Mumbai on Wednesday. UCO Bank added 2.1 percent, while Bank of Baroda advanced 0.4 percent. Banks shares rose because of “bargain hunting,” Chokkalingam said.
Bad-debt ratio at Punjab National widened to 12.9 percent from 8.47 percent in the preceding quarter, while Bank of Baroda, India’s second-largest state-run bank, reported gross bad loan ratio of 9.99 percent. UCO Bank last week said it’s bad debt had surged to 15.43 percent.
Three months ago, Bank of Baroda reported similar results for the December quarter -- a net loss and a surge in provisions for soured credit -- though the stock surged 23 percent as comments from company executives fueled optimism bad loans had peaked. The level of provisions taken for that period was intended to leave “no uncertainty” for the March quarter, Narang Vidyasagar, a general manager for the bank, said at the time.
Bank of Baroda’s new management appears to be “front-loading the cleaning act rather spreading over a period to show better performance later,” Bajrang Bafana, an analyst with Sunidhi Securities & Finance Ltd., wrote in a note to clients on Tuesday.
Some investors are betting a revival in global growth and better monsoon rains in India will help cut bad loans and revive credit growth.
“Bank are now more proactive in recognizing bad loans,” said Gopal Agrawal, chief investment officer at Mirae Asset Global Investments (India) Pvt. that has $468 million in assets. “More or less the provisioning is over. If in the future global growth picks up and projects revive we can even see some write backs."
For now lenders such as Punjab National say they won’t pay any dividend. It’s the first time since at least 2006 that Punjab National has skipped a payout, data compiled by Bloomberg show.
--With assistance from Ameya Karve and Hemal Savai
Bloomberg
