After four years of consecutive losses, the state run banks are likely to report a profit of Rs 23,000-37,000 crore in the next financial year, with their gross non performing loans declining to 8.1-8.4 percent by March 2020, says a report.
In the last four years, with large capital infusion from the government, the state-run banks have been able to recognise and provide for their stressed assets with a steady decline in their gross NPAs (GNPAs) and net NPAs (NNPAs).
It also helped them in improving their capital ratios which also supported the exit of five PSBs from prompt corrective action (PCA) framework of the Reserve Bank of India. “PSBs are expected to report net profits of Rs 23,000-37,000 crore during FY20, after four consecutive years of losses, even though overall profitability will remain weak with return on net worth (RoNW) of 4-6.3 percent,” rating agency Icra said in a note.
It said the GNPAs and NNPAs of PSBs is likely to decline to 8.1-8.4 percent and 3.5-3.6 percent by March 2020, as against 10.3 percent and 5.3-5.4 percent, estimated for March 2019 and; 10.9 percent and 6.3 percent as on December 31, 2018.
The report said with reducing fresh slippages, the credit provisions are expected to decline, and we expect 14 PSBs in base case and 11 PSBs in the stress case to report profits during FY20, as compared to only five PSBs that are likely to report profits in FY19.
In the first nine month of FY19, the net losses stood at Rs 42,900 crore and is expected to increase to Rs 65,000 crore during FY19 as compared to Rs 85,400 crore during FY18.
The overall fresh slippages for PSBs are estimated to decline to Rs 2.5 trillion (4.5 percent) during FY19 and are expected to decline further to Rs 1.3-1.6 trillion (2.1-2.7 percent) during FY20, the report said.
Compared to PSBs, the performance of the private banks (PVBs) remained strong with year-on-year growth of 18.7 percent in advances as compared to 4.2 percent for PSBs as on December 31, 2018, and around 64 percent share in incremental credit growth during the trailing 12 months (TTM).
The report said with improved capital position, PSBs are expected to pursue credit growth and pose challenges to PVBs on both the lending and the deposit side and the market share gains are expected to slow down for PVBs, going forward.
The deposit mobilisation to match high credit growth continues to remain a challenge for private banks.
With PSBs expected to chase credit and deposit growth next year, it may be difficult for banks to cut lending rates as the competition for deposits is expected to heighten, it said.
Meanwhile, the agency revised rating outlook of six PSU banks- IDBI Bank, Bank of India (BOI), Punjab National Bank (PNB), Oriental Bank of Commerce (OBC), Bank of Maharashtra (BoM) and Punjab and Sind Bank (PSB).
It revised BoI, PNB, OBC and BoM’s outlook to stable from negative.
It removed IDBI Bank’s rating from Rating watch with developing implications and assigned negative outlook due to the pressure on the asset quality and credit provisioning.