The financial year 2017-18 started on a great note for the Indian banking. State Bank of India (SBI) broke into global top 50 after merging with itself five of its associate banks. By the fourth quarter of the fiscal year, however, Punjab National Bank was left with nearly Rs 140-billion fraud perpetrated by jeweller Nirav Modi.
On the other hand, yields on 10-year government securities also saw sharp swings, falling from 7.47 per cent in April 2017 to 6.19 per cent in November last year and back to 7.4 per cent levels now. Banks, especially public sector ones, saw a surge in non-performing loans, partly pushed by regulatory disclosure requirement.
In many ways, this shows how volatile the year has been. SBI suffered a loss in the December quarter, first in nearly two decades, as it had to show a massive bad debt following the RBI’s asset review. Besides, adverse yield movement in the December quarter burnt a hole in its pocket. The bank reported a quarterly loss of Rs 24.16 billion against a profit expectation of almost an equivalent figure.
Banks struggled with their bad debt throughout the year. The gross NPA (non-performing assets) ratio of the industry was at 7.69 per cent of total advances as on March 2016. It rose to 10.32 per cent (Rs 8.86 trillion) by the end of December 2017 quarter. Gross NPA ratio of public sector banks (PSBs) stood at 13.03 per cent at the end of December quarter. The banking industry had suffered losses during the year. The loss was entirely due to PSBs which struggled to keep up provisioning against their ballooning bad debt.
However, the stress did not reflect in market valuations of the banking industry. The combined market cap rose to Rs 17.86 trillion in December 2017 from Rs 10.8 trillion in March 2016. Non-banking finance companies (NBFC) partially made up for the deficiencies. Their net profit and market cap rose significantly. “The share of NBFCs in total credit extended by banks and NBFCs together to 15.5 per cent in March 2017 increased from 9.5 per cent in March 2008. NBFCs credit intensity, that is, credit as per cent of GDP, has increased at a steady pace, reaching 8 per cent at the end March 2017,” observed an RBI report. However, so has NPAs for the sector. From 2.8 per cent in FY12, NPAs now stand at 4.8 per cent of the total advances for the NBFC sector.
Even as the Insolvency and Bankruptcy Code was made operational in May 2016, the real action took place in 2017-18. Since its inception in November 2017, according to the RBI data, over 4,300 cases were filed for resolution in various benches of the National Company Law Tribunal. This required huge provisioning for banks, and the government has promised to infuse Rs 2 trillion in PSBs. The first list of 12 large accounts has assets worth Rs 2.8 trillion. According to CLSA, the haircut in total assets could be on average 50 per cent.
One challenge for banks has been a sharp northward bond yield movement. In the December quarter, the 10-year bond yields spiked up by about 70 basis points. This led to mark-to-market losses of at least Rs 150 billion for banks. In the March quarter, the yield movement has been relatively moderate and the year may close on a better note as yields fell sharply after the light first half borrowing plan.
Nevertheless, the rise in yields, despite policy rates remaining unchanged posed a huge challenge. The credit growth in the system, as on March 2 was at 11.5 per cent, mostly because of low base and increased retail lending.
But the year also saw focus shifting to digital transaction, from the traditional banking channels, as mobile banking gathered pace.
PNB scam and banking crisis: NPAs soared, profits plunged for banksPNB scam and banking crisis: NPAs soared, profits plunged for banksPNB scam and banking crisis: NPAs soared, profits plunged for banksPNB scam and banking crisis: NPAs soared, profits plunged for banks
On the other hand, yields on 10-year government securities also saw sharp swings, falling from 7.47 per cent in April 2017 to 6.19 per cent in November last year and back to 7.4 per cent levels now. Banks, especially public sector ones, saw a surge in non-performing loans, partly pushed by regulatory disclosure requirement.
In many ways, this shows how volatile the year has been. SBI suffered a loss in the December quarter, first in nearly two decades, as it had to show a massive bad debt following the RBI’s asset review. Besides, adverse yield movement in the December quarter burnt a hole in its pocket. The bank reported a quarterly loss of Rs 24.16 billion against a profit expectation of almost an equivalent figure.
Banks struggled with their bad debt throughout the year. The gross NPA (non-performing assets) ratio of the industry was at 7.69 per cent of total advances as on March 2016. It rose to 10.32 per cent (Rs 8.86 trillion) by the end of December 2017 quarter. Gross NPA ratio of public sector banks (PSBs) stood at 13.03 per cent at the end of December quarter. The banking industry had suffered losses during the year. The loss was entirely due to PSBs which struggled to keep up provisioning against their ballooning bad debt.
However, the stress did not reflect in market valuations of the banking industry. The combined market cap rose to Rs 17.86 trillion in December 2017 from Rs 10.8 trillion in March 2016. Non-banking finance companies (NBFC) partially made up for the deficiencies. Their net profit and market cap rose significantly. “The share of NBFCs in total credit extended by banks and NBFCs together to 15.5 per cent in March 2017 increased from 9.5 per cent in March 2008. NBFCs credit intensity, that is, credit as per cent of GDP, has increased at a steady pace, reaching 8 per cent at the end March 2017,” observed an RBI report. However, so has NPAs for the sector. From 2.8 per cent in FY12, NPAs now stand at 4.8 per cent of the total advances for the NBFC sector.
Even as the Insolvency and Bankruptcy Code was made operational in May 2016, the real action took place in 2017-18. Since its inception in November 2017, according to the RBI data, over 4,300 cases were filed for resolution in various benches of the National Company Law Tribunal. This required huge provisioning for banks, and the government has promised to infuse Rs 2 trillion in PSBs. The first list of 12 large accounts has assets worth Rs 2.8 trillion. According to CLSA, the haircut in total assets could be on average 50 per cent.
One challenge for banks has been a sharp northward bond yield movement. In the December quarter, the 10-year bond yields spiked up by about 70 basis points. This led to mark-to-market losses of at least Rs 150 billion for banks. In the March quarter, the yield movement has been relatively moderate and the year may close on a better note as yields fell sharply after the light first half borrowing plan.
Nevertheless, the rise in yields, despite policy rates remaining unchanged posed a huge challenge. The credit growth in the system, as on March 2 was at 11.5 per cent, mostly because of low base and increased retail lending.
But the year also saw focus shifting to digital transaction, from the traditional banking channels, as mobile banking gathered pace.
PNB scam and banking crisis: NPAs soared, profits plunged for banksPNB scam and banking crisis: NPAs soared, profits plunged for banksPNB scam and banking crisis: NPAs soared, profits plunged for banksPNB scam and banking crisis: NPAs soared, profits plunged for banks
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