‘PSBs’ losses have wiped out Govt’s $13 bn cap infusions’

Source: The Hitavada      Date: 02 Jun 2018 10:46:20



LOSSES by State-run banks had almost entirely wiped out the USD 13 billion capital infusion by the Government, and the situation was unlikely to improve in the current fiscal year, ratings agency Fitch said on Friday. The big losses would pressure the banks’ viability ratings as well, it warned. “Cumulative losses at the State banks were large enough to wipe out almost all of the Government’s capital injections of USD 13 billion in FY18, and weak performance is likely to continue in the coming year,” it said.

The poor results were due to revision in the non-performing assets (NPAs) recognition which was accelerating bad loan recognition, it said, adding that the February 12 revision was part of a clean-up that should improve the health of the bank sector over the long term. The revisions have led to a major uptick in the credit costs for State-run lenders to 4.3 per cent in FY18, from 2.5 per cent in the year-ago period, while NPAs for the overall banking sector rose faster than expected to 12.1 per cent from the 9.3 per cent.

For State-run lenders, the average NPAs shot up to 14.5 per cent, with IDBI Bank, UCO Bank and Indian Overseas Bank having their NPAs at above 25 per cent. Around 19 of the 21 State-run banks reported losses for the fiscal, including the country’s largest lender SBI, while the otherwise resilient private sector banks were also not immune, with Axis Bank reporting its first quarterly loss. Capital buffers at six State-run banks, including the second largest lender by assets Punjab National Bank, slid below the minimum prescribed by the regulators, it said, adding that they would have to meet the 8 per cent requirement by end of FY19.

The USD 11 billion in capital committed by the Government for FY19 would help banks avoid breaching regulatory triggers, but more Government capital was required to stabilise banks’ balance sheets, meet regulatory requirements and support growth, it underlined. It was possible that the list of State-run banks placed under the RBI’s Prompt Corrective Action (PCA) framework that focussed on strengthening quality over growth, would get enlarged this year, the agency said.