Why Banks Are Having A Disastrous Quarter?

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Banks have had one of the worst quarters in recent times. ICICI Bank saw profits halved, while Allahabad Bank, Union Bank, Canara Bank and UCO Bank reported massive losses.

Federal Bank shares on the other hand plunged almost 10 per cent last week on the day it declared its quarterly numbers. Let's first take a look at some numbers, before we try and see if the worst is behind us.

Canara Bank reported a net loss of Rs 4,860 crore for the quarter ending March 31, 2018, against a profit of Rs 214 crore. The gross non performing assets of the bank surged to 11.84 percent versus 10.38 percent (QoQ).

Why Banks Are Having A Disastrous Quarter?
Allahabad Bank reported a net loss of Rs 3,510 crores. The gross non performing assets were placed at 15.96 percent versus 14.38 percent (QoQ). On the other hand the net NPA stood at 8.04 percent versus 8.97 percent (QoQ).

UCO Bank, another government saw net losses at the bank widen to Rs 2,134.36 crore versus loss of Rs 588.19 crore (YoY).

Select private sector banks too, reported bad numbers. Federal Bank saw a fall of 43.5 per cent in standalone net profit in the quarter ended March 2018. ICICI Bank net profits dived near 50 per cent to Rs 1020 crores.

Is the worst over for the banking sector?

It is likely that the worst for the banking sector maybe over. Most of the bank have made higher provisions, which has dragged net profits lower.

For example, ICICI Bank saw a huge hike in provisioning of 85 per cent. This is unlikely to happen in the coming quarters. Also, the bank is now laying an emphasis on gradually moving towards retail business, which has helped a lender like HDFC Bank control its NPAs well.

For government owned banks, one is not sure when the misery will end. The biggest worry for some of these banks is also on re-capitalization. There was so much noise made around bank recapitalization and yet there is no news currently on what shape it is taking. With elections to a new central government next year, we may see things being stuck.

Capital starved PSU banks are going to find expansion of business extremely difficult.

Shares of government owned banks have been languishing for so many quarters. This may leave investors thoroughly frustrated. At the moment there seems to be no light at the end of the tunnel. Hopefully, some recoveries are likely to happen through the debt resolution mechanism of bankrupt companies. However, overall it seems that there are likely to be a few more quarters of pain.

GoodReturns.in

Story first published: Monday, May 14, 2018, 11:50 [IST]
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