PSU Banks: Bad times over yet?
Moody's, one of the top ratings agencies, said that the outlook for Indian banks project that it is set to improve and stabilize over the coming years. This stabilization is expected when concerns on asset quality decrease. State Bank of India's chairperson Arundhati Bhattacharya also stressed on the same issue earlier, stating that burgeoning bad assets will fall when industrial sectors touch optimum capacity.
Public Sector Banks are those in which a majority of the stake is controlled by the government. The Public Sector Undertakings, most often are listed and have their shares being traded across stock exchanges. In India, there are close to 27 public sector banks, out of which 21 are nationalized banks and six others are under the State Bank group.
In the banking sector, India's five major public sector banks posted massive losses earlier this year. The spree of losses come in the wake of increasing non-performing assets and holdings and a weakening banking sector. Bank of Baroda posted a loss of Rs.3,230 crore for their fourth quarter, while UCO Bank listed a loss of Rs.1,715 crore in March this year.
Apart from Bank of Baroda and the UCO Bank, Allahabad Bank, Central Bank of India and Dena Bank scripted massive losses their last quarter. The Central Bank of India had losses of nearly Rs.898 crore this quarter, while Allahabad Bank reported losses worth Rs.581 crore. Dena Bank had been hit with Rs.326 crore as losses during the March quarter.
The top PSU banks were hit with losses mainly due to the increasing non-performing assets (NPA) and also due to the steep climb in the provisions set aside for them. The highest was reported by Bank of Baroda with NPAs worth Rs.40,521 crore.
The PSU Bank index has plunged over 37 percent in the past year, with increasing NPAs that have peaked to almost Rs.2.43 lakh crore during the last financial year. The PSU bank stocks have been experiencing consecutive losses, with the index losing nearly 11.6 percent each year during the last five years. This highlights that there is an increasing asset quality-stress across public-sector banks.
"India's banking system is moving past the worst of its asset quality down cycle, supporting its stable outlook - Baa3 - over the next 12-18 months," Moody's said.
