Most top public sector banks have reported steady second-quarter earnings, with lower slippages as the economy opened up and COVID-19 cases fell.
State Bank of India reported a robust performance as it bravely fought off the COVID-19 impact and displayed remarkable resilience in asset quality performance.
India’s largest bank reported a steady quarter, with net earnings growing 67% YoY to Rs 7630 crore, aided by controlled provisions, as asset quality showed remarkable strength, despite the impact of the second Covid wave.
The bank has been reporting continued traction in earnings, led by controlled provisions. However, business trends remain modest, impacted by continued deleveraging by corporates. The bank has been able to maintain a strong control on restructured assets at 1.2% of loans, while the special mention account (SMA) pool declined sharply.
It created a family pension provision of Rs 7,420 crore, instead of amortizing it over five years, thus prudently deploying one-off gains from the DHFL recovery and tax refund. The bank has fully provided for its exposure towards the SREI group.
GNPA/NNPA ratios improved by 42 basis points /25bp quarter on quarter (QoQ) to 4.9%/1.5% as fresh slippage subsided to Rs 4180 crore. Restructured book remained in check at 1.2% of loans, while the SMA pool declined sharply to Rs 6,690 crore (27bp of loans).
According to analysts, the slippage trajectory of the bank is likely to moderate further assuming there is no third Covid wave, while credit cost may undershoot the normal cyclical trends. The bank has a healthy PCR of 70% and holds unutilized Covid-related provisions of Rs 6200 crore.
Canara Bank
State-run Canara Bank reported a three-fold jump in its standalone net profit at Rs 1,333 crore in the quarter ended September, aided by lower bad loan provisioning, rise in non-interest income, and recovery from DHFL resolution. The lender had reported Rs 444 crore profit in the year-ago quarter.
“Despite moderate credit growth of 6% YoY and soft NIMs (Net interest margin), Canara Bank reported a strong beat on PAT versus our estimate, mainly helped by higher treasury income, contained provisions and cash recovery from DHFL,” said Emkay in a note.
Union Bank
Union Bank of India reported healthy earnings, supported by recovery from the DHFL resolution.
The bank reported a PAT of Rs 1530 crore, up 195% year on year, supported by higher recoveries from written-off accounts of Rs 1760 crore, including recovery of
Rs 1,650 crore from the resolution of the DHFL account.
Furthermore, fee income trends improved, while domestic margins declined; muted loan growth affected net interest income growth. On the other hand, asset quality performance was stable despite elevated slippage, largely led by Corporate – this includes slippage from SREI Infra (Rs 2,600 crore). However, higher write-offs and upgrades aided improvement in asset quality on a sequential basis. Moreover, it now carries provisions of 65% on SREI Infra (higher versus peers).
The SMA-2 book declined to 2.3% of loans (versus 3.7% of loans in first quarter of FY22). Thus, slippage would moderate from fiscal 2023 onwards, and credit costs are expected to come in at 2.2%/1.9% for FY22/FY23, according to analysts.
Punjab National Bank
Punjab National Bank (PNB) delivered a weak operating performance in the second quarter as the bank was impacted by a decline in net interest income with domestic margins contracting sharply by 36 basis points quarter on quarter, while net earnings grew 78% year on year, aided mainly by tax reversals. The total recovery from the DHFL resolution was Rs 1,270 crore and was predominantly utilised for making provisions for one large corporate account (SREI Infra). On the business front, loans/deposits grew 2% sequentially.
PNB reported a 78% YoY and 8% QoQ increase in PAT at Rs 1,110 crore aided mainly by tax reversals (Rs 340 crore) and controlled provisions (34% QoQ decline). However, PNB’s operating performance was weak with the PPoP declining 27% YoY due to a decline of 25% YoY in net interest income and domestic margins declining sharply by 36 bps QoQ to 2.45%.
On the asset quality front, slippages were elevated (~5.4% annualised) due to two large corporate accounts (Rs 3600 crore) which included slippage of Rs 2,800 crore from Srei Infra. However, higher recoveries and upgradations supported the bank’s asset quality with its GNPA/NNPA ratio declining by 70bp/35bp sequentially. PNB’s total restructured book (earlier Covid schemes) stood at 3.1% of loans, while total SMA overdue (Rs 5 crore) amounted to Rs 25,000 crore.
UCO Bank
UCO Bank’s net profit for July-September jumped 581.9% on year to Rs 210 crore on improvement in asset quality, lower overall provisions, and growth in other income. Sequentially, the net profit increased 101.7%. In the quarter ended September, provisions and contingencies excluding current tax, stood at Rs 1,020 crore, down 21.7% on year and largely unchanged on quarter. Provisions for tax were at Rs 100 crore, against a Rs 260 crore write-back last year. Provisions for non-performing assets stood at Rs 1,590 crore, up 54.6% on year and 88.9% on quarter.
The bank said it had identified two Kolkata-based accounts of the same group as non-performing assets during the quarter, post lifting of a legal stay on identifying them as bad loans. While UCO Bank didn’t name the account or group, it possibly referred to Srei Infrastructure Finance and Srei Equipment Finance.
The Srei twins are under the scanner after the Reserve Bank of India superseded their boards, citing corporate governance issues. UCO Bank said it had provided for these two stressed accounts as per regulatory norms. Despite this, UCO Bank’s gross non-performing asset ratio eased to 8.98% as on September 30 from 9.37% on Jun 30, and 11.62% a year ago.
The net non-performing asset ratio fell to 3.37% as on Sep 30 from 3.85% a quarter ago and 3.63% a year ago. The bank said that to guard against the impact of any future waves of Covid on its books, it was making an ad hoc provision of 2.5 bln rupees in July-September, taking the total provisions linked to Covid to Rs 750 crore as on September 30.
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