Fry-day: Bad debt scalds bank bottomlines

The financial results of some private sector banks for the second quarter of fiscal 2013 ended September 30 announced on Friday highlight the contrasting performance of state and private sector lenders in India.

During tough spells in the economy, loans by state-run banks, which account for 70 per cent of the market but whose lending decisions are not always driven by purely commercial factors, are more likely to fall into default going by the results.

On Friday, ICICI Bank on Friday reported 20 per cent rise in its consolidated net profit to Rs 2,390.37 crore for the second quarter ended September 30, 2012 as compared with a net profit of Rs 1,991.68 crore in the same period last fiscal.

The total income of the the country’s largest private sector during the July-September quarter rose to Rs 18,609.43 crore from the comparable quarter in the last fiscal at Rs 16,110.61 crore, ICICI Bank said.

On a standalone basis, the bank's net income was 1,956.11 crore during the quarter under review, which is an increase of 30.13 per cent from Rs 1,503.19 crore in Q2FY12.

Total income during the period under review was Rs 12,069.30 crore as against Rs 9,897.17 crore. The net non-performing assets (NPA) ratio of the bank declined to 0.66 per cent in the latest September quarter in comparison with a year earlier.

At the same time, it reported healthy 15 per cent growth in saving accounts deposit to Rs 80,618 crore at the end of September 2012.  “The bank has continued with its strategy of pursuing profitable growth. The bank has grown its retail lending volumes resulting in a improvement in retail loan portfolio growth,” ICICI Bank said.

Advances rose 18 per cent to about Rs 2.75 lakh crore during the period under review. In the comparable quarter, they stood at Rs 2.34 lakh crore.

“The year-on-year growth in retail advances was 14 per cent at the end of September 2012 compared to a year-on-year growth of 10.3 per cent at end of June 2012,” the bank noted.

State-owned Punjab National Bank disappointed investors with lower profits, sending its shares down more than 7 per cent on Friday. PNB's net profit fell 11.5 per cent in the same quarter, with bad loans as a percentage of total assets rising to 2.69 per cent, from 0.84 per cent a year ago.

Many government-owned lenders are exposed to the beleaguered state electricity boards, troubled power and infrastructure projects, and debt-laden firms such as Kingfisher Airlines, Air India and Deccan Chronicle. "It is difficult to say whether the worst is over," said K R Kamath, Chairman of Punjab National Bank (PNB), India's second largest government-owned lender by assets.

"It is a reflection of what is happening in the economy. It all depends how the economy behaves in the next 3-6 months," he said.

Bad loans at Indian Overseas Bank, a smaller state-run lender, rose to 2.25 per cent from 1.21 per cent a year ago, it said on Friday, sending its shares down over 8 per cent.

India is battling high inflation, a yawning fiscal deficit and flagging growth amid political paralysis. Ratings agency Standard & Poor's has said the country faces a one-in-three chance of a downgrade over the next 24 months.

Consumer lending

Infrastructure and power projects mired in land acquisition hurdles and corruption scandals have already started to pinch banks, which are either restructuring loans to these projects or classifying them as bad. Most private sector banks have stayed away from project financing.

"In general, private sector banks have a larger proportion of retail assets. Retail assets, in terms of quality, have been stable and their performance has been good," ICICI chief executive Chanda Kochhar told reporters in a post-earnings call.

The ratio of bad loans at ICICI dropped to 0.78 per cent in the September quarter compared with 0.93 per cent a year ago.

ICICI aims to grow its domestic loan book by around a fifth in the fiscal year ending March 2013, led by consumer loans and working capital, and will be particularly cautious in unsecured retail lending and project finance. Its net interest income -- the difference between interest earned and interest paid out -- rose 35 per cent to Rs 3,371 crore.

Smaller private lenders HDFC Bank Ltd, Axis Bank Ltd and Yes Bank Ltd all recently reported strong quarterly profit growth.

ICICI shares have risen nearly 60 per cent this year, outpacing 45 per cent growth in overall bank stocks and the broader Indian market's 23.4 per cent gain. Its current market value is close to $23.3 billion.

State banks, including PNB and Indian Overseas Bank, have lagged the broader market and their private peers. They have risen nearly 3 and 9 per cent respectively this year.