India's state-run banks see NPAs worsening

State-run banks in India saw bad loans, or non-performing assets (NPAS), piling up during the second quarter (July-September) of this fiscal as well, results for the second quarter of the current fiscal announced on Friday showed.

Of the six banks – Bank of Baroda, Bank of Maharashtra, Corporation Bank, UCO Bank, United Bank of India (UBI), and Vijaya Bank – two reported year-on-year decline in net profit, while three of the lenders reported significant improvement in profitability.

Bank of Baroda, the country's second largest public sector bank, saw its second quarter after-tax profit decline by 5.5 per cent from a year earlier to Rs1,104 crore. A five-fold increase in tax provisions and deterioration in credit quality affected the lender's earnings.

Despite lower earnings, tax provisioning increased sharply to Rs410.67 crore, due to a deferred tax liability on special reserves. Gross non-performing asset (NPA) ratio increased by 21 basis points sequentially and by 17 basis points from a year earlier to 3.32 per cent. ''The bank was expecting improvement in business environment by end of September. But things have not evolved on expected lines. There is still stress in the system, which might continue for two or more quarters,'' P Srinivas, executive director at Bank of Baroda, said.

The lender has now raised its gross NPA guidance for March 2015 to 3.2 per cent, up from 3 per cent. It has also scaled down estimates on return on asset to 0.9 per cent from one per cent.

UCO Bank's second quarter net profit plunged 74 per cent to Rs1,03.5 crore, as provisions increased sharply and restructured loan accounts witnessed fresh slippages. The bank made Rs935 crore provisions, excluding tax, during the three-month period compared to Rs759 crore a year earlier.

''Our credit growth was relatively muted. Also, slippages of assets from the infrastructure sector led to Rs 2,100 crore NPAs during the quarter. Besides, half of total slippages were by restructured assets,'' Arun Kaul, chairman and managing director at UCO Bank said. He said the bank was continuing its focus on loan recovery and avoiding large ticket corporate advances to improve the health of its assets.

Vijaya Bank reported 5.9 per cent increase in net profit at Rs144 crore. The bank said earnings were lower because of higher provisioning for NPAs (up 16 per cent) and fresh slippages (Rs731 crore) capped further growth in the bank's earnings. ''There was no visible demand for credit from corporate sector as no new greenfield or brownfield investments took place. We do not see any demand from this sector even in the third quarter,'' V Kannan, chairman and managing director of Vijaya Bank, said.

Bank of Maharashtra, Corporation Bank and UBI reported sharp increase in their net profits.

Pune-based Bank of Maharashtra announced 248 per cent growth in net profit at Rs163 crore, helped by an upgradation of accounts that had earlier slipped into NPAs. The lender also improved its net interest margin by 20 basis points to 2.90 per cent. ''Cash recoveries and upgradations helped us to contain the impact of gross NPA,'' S Muhnot, chairman and managing director of the bank, said.

United Bank of India, which looked like making a turnaround, reported net profit of Rs 43.8 crore in the July-September quarter compared to a net loss of Rs489.7 crore in the corresponding period of the previous year.

It may be noted that UBI's chairman had opted for voluntary retirement and claims were made of window dressing its accounts to conceal NPAs. But for the past few quarters the lender has stepped up its loan recovery efforts, which now appears to be yielding results.

Corporation Bank said its net profit increased over 10-fold to Rs160.5 during the second quarter compared to Rs15.5 crore a year earlier. Lower provisions - Rs520.4 crore versus Rs699.8 crore - helped the bank improve its earnings performance.