Banks show signs of asset quality improvement

Source :THBL 5h May 2010,BL Research Bureau
 

Quarterly results show NPA proportions are falling.

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Of the 28 banks that have declared their results thus far, 23 witnessed Gross NPA proportions falling sequentially.

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As the economy revived in the last fiscal (2009-10), increasing the expectation of asset quality improvement, the financial performances of banks have shown initial signs of asset quality improvement.

Of the 28 banks that have declared their March quarter results thus far, 23 witnessed Gross NPA proportions falling sequentially.

 The combined Gross NPA proportion of all 28 banks as of December 31, 2009, stood at 2.2 per cent but has improved to 2.04 per cent as of March 31, 2010.

Loan book grew by 9 per cent quarter-on-quarter against the Gross NPA growth of 3.4 per cent.

Six out of eight private banks and 17 out of 20 public sector banks managed to improve their asset quality sequentially.

State Bank of Bikaner and Jaipur, Central Bank of India, IDBI Bank and Canara Bank have seen their asset qualities improve the most sequentially, while asset qualities of IOB, ING Vysya and ICICI Banks slipped.

However, the Gross Non-Performing Assets (GNPA) of 28 banks rose by more than Rs 6,700 crore or 20 per cent year-on-year. Their loan book grew at a slower 17 per cent.

This is the second consecutive year the Gross NPAs witnessed a 20 per cent expansion for the given set. While the increase in GNPA for 2008-09 could be attributed to the slowdown in the economy, the current increase in NPAs could be partly due to the restructuring of assets during the prior periods.

The combined Gross NPA ratio of banks marginally deteriorated from 1.96 per cent in March 2009 to 2.04 per cent in March 2010. The Net NPA proportion stood at 0.92 per cent, up from 0.9 per cent for the preceding year.

Indian Overseas Bank, ING Vysya Bank and State Bank of Patiala topped the list of banks that have witnessed significant deterioration in their Gross NPA proportions.

Of the 28 banks, 11 improved their asset quality year-on-year, with South Indian Bank, HDFC Bank and Yes Bank improving their asset quality the most.

ICICI Bank and the above banks witnessed a fall in the absolute Gross NPAs over the year. Among the public sector banks, Central Bank of India, Dena Bank and UCO Bank saw sequential improvement in the asset quality.