Thursday, 9 June 2016

If you pay Rs 150 for a bank stock, Rs 50 is going as bad loan:

25 banks that have reported their FY16 numbers so far would have made them miss a heart beat for sure.
Data compiled from corporate database AceEquity shows 25 banks, including both private and public sector players, have nearly doubled total gross non-performing assets, leading to a 35 per cent drop in net profit and single-digit growth in interest earned in a challenging year in FY16.

If that wasn't enough, provisions rose by 80 per cent, thanks to RBI's push for cleaner balance sheets.

At present market prices, NPAs of these private and public lenders accounted for one-third of market capitalisation, compared with 14 per cent in the previous year.

It means if you are paying Rs 150 for a bank stock, you are taking into account one-third of it, i.e. Rs 50, as bad loans.

Data showed gross NPAs of 25 banks jumped by a staggering $19 billion (at rupee 67 to the dollar) to $37 billion (Rs 2.45 lakh crore) in FY16 from Rs 1.3 lakh crore ($19.5 billion) in FY15.

Combined profits for those lenders saw a 36 per cent YoY degrowth to Rs 30,104 crore (after taking provisions into account) in FY16, compared with Rs 46,526 crore in FY15.

What concerned the most was the 80 per cent YoY rise in provisioning to Rs 71,525 crore from Rs 39,760 crore in the year-ago period.

Provisions made were in fact three-fourth of profit (excluding the impact from provisions) for the year.

Abhishek Bhattacharya, director at India Ratings and Research, recently estimated one-fifth of bank loans, estimated at about Rs 13 lakh crore, to be already stressed. This is bigger than the size of New Zealand's economy .

For instance, PSU lender BoB on Friday reported a quarterly loss of Rs 3,230.14 crore for the quarter ending March 31. The provisions for the quarter stood at a staggering Rs 6,857 crore ($1.02 billion).

The bank's MD and CEO PS Jayakumar had declared in December quarter that the lender had taken a hit due to the Reserve Bank of India's asset quality review (AQR) in one single quarter. Yet, the company made fresh provisions in the March quarter.

"I think nobody had any expectation from the PSU banks, but the quantum of NPA recognition is a little alarming. People were estimating that one round of which had already happened last quarter and they had some expectation that this might stabilise over here. We are not seeing that trend and we think this is likely to continue for two more quarters, not to the acceleration in terms of the pace, but the pain would definitely be there on their books," said Vaibhav Sanghvi, MD, Ambit Investment Advisors.

Meanwhile, the 25 banks reported an 8.45 per cent jump in interest earned during the financial year to Rs 4,67,518 crore from Rs 4,31,313 crore in FY15.

Banks' loan growth stood at 10.7 per cent in FY16, which was the slowest in nearly two decades, partly on lower lending to the heavily debt-ladden sectors such as iron and steel, which account for the lion's share of bad debt.

"We tabulated the results of every single bank that has reported results and found that every single bank has a significant increase in NPAs, including the private sector ones. Last year, we thought NPAs are bad. This year we even get Axis Bank and ICICI Bank reporting larger stressed assets, which are not yet NPAs," said Deepak Shenoy, Founder, Capital Mind.

"I believe this list is going to increase, because there is a trickledown effect of NPAs. This, I think, is not the end. But we are going to see significant NPA revelations in the next few days from the public sector banks," he said.

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