Q2 review: FM to meet govt bank chiefs on Nov 15

Last Updated: Thu, Nov 01, 2012 19:52 hrs

Finance Minister P Chidambaram will review the second-quarter (Q2) performance of state-owned banks on November 15. His meeting with the bank chiefs comes against the backdrop of growing stress on banks’ balance-sheets and slowdown in credit flow to priority sectors. Steps to increase credit flow to micro, small and medium enterprises (MSMEs) and farm sector would also figure in the meeting, said senior public sector bank executives.

The Reserve Bank of India has also flagged issue of credit to SMEs. The central bank will also meet bank heads at the end of this month to review status.

Among the large public sector banks that have announced results for the second quarter so far, only Bank of Baroda has reported a consistent performance, withering stressful times. Three others — Bank of India, Punjab National Bank and IDBI Bank — came out with numbers below market expectations.

While commercial banks reported a dip in credit growth at 15.9 per cent at end-September, compared with 19.5 per cent a year ago, the drop has been particularly sharp for state-owned banks, which have market share of over 70 per cent.

Quarter ended NII (Rs cr) Net profit (Rs cr) Gross NPA %
Sep-12 Chg%* Sep-12 Chg%* Sep’11 Sep’12
PNB 3,649.37 5.70 1,065.58 -11.57 2.05 4.66
Bank of Baroda 2,862.30 11.51 1,301.39 11.60 1.41 1.98
Bank of India 2,195.96 15.34 301.85 -38.54 3.02 3.42
Syndicate Bank 1,390.80 5.92 463.37 43.48 2.38 2.47
IDBI Bank 1,249.32 11.35 483.53 -6.28 2.47 3.45
* YoY change %; Compiled by BS Research Bureau
Source: Bloomberg

The deceleration in the credit flow reflected in the slack investment demand, slowing economic activity, and more importantly, deteriorating credit quality, especially in the case of state-owned banks.

The ratio of gross non-performing assets (NPAs) to gross advances also increased significantly during FY12. They rose further in the first quarter of FY13 across the bank groups. The increases were maximum for the public sector banks.

The slippage ratio, which indicates the fresh NPAs, increased across sectors, signalling additional stress in the banking sector. Restructuring of standard assets also rose significantly for the state-owned banks during the first quarter of FY13.

Deterioration in the assets quality and in the macroeconomic conditions resulted in added risk-aversion in the banking sector.

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