State bank of India and Punjab national bank, India’s largest public-sector banks have seen a significant fall in non-performing assets in the fiscal’s second quarter. SBI accounts for the highest share of PSU Bank’s GNPAs at 20 percent. It reports the highest asset quality improvement in the second quarter. The bank’s gross non-performing assets ratio fell to 5.3% in September 2020, compared to 7.2% in the same month last year. Another large PSU bank, PNB that accounts for a 16% share in overall PSU bank’s GNPAs, saw a fall in NPAs at 13.4% in September 2020, compared to 16.8 percent in the last year.
Due to recoveries and higher write-offs by the multiple banks, there has been an improvement in asset quality. According to Care Ratings, the State Bank of India alone had recoveries to the tune of Rs 4,038 crores and has written off loans worth Rs 5,617 crores. Among other PSU banks, NPAs of Bank of India fell from 16.31% to 13.79% on year in Q2; Bank of Maharashtra (16.86% to 8.81%); Indian Overseas Bank (20% to 13.04%); and NPAs of UCO Bank fell from 21.87% to 11.62% on-year in Q2.
The net NPAs of all banks also shrank significantly to Rs 2.1 lakh crores in Q2 fiscal year 21 from Rs 4.5 lakh crores in Q2 fiscal year 19 which reflects an increase in provision coverage ratio. The aggregate provision coverage ratio of all banks rose to 80% at the end of Q2, from 68.9% in the previous year. The GNPA ratio of scheduled commercial banks further improved to 7.7% in September 2020, against 9.3% in the year-ago period, and 8.2% in the current fiscal’s first quarter, which was largely driven by PSU banks.
The aggregate interest income recorded a marginal increase of 0.8% during Q2 due to subdued credit offtake, coupled with falling interest rates. Additionally, the falling deposit interest rate in the quarter also led to a decline in interest expense of banks by 8%, compared with 9.4% growth in the year-ago period.
Supreme Court has ordered all banks to not classify Covid-19 related defaults as non-performing assets until further notice, or else the NPAs would have been higher in the second quarter. As per disclosures by banks studied by the rating agency, the Gross NPAs would have been around 0.5 – 0.6% higher if these accounts been classified as NPAs. Meanwhile, IDBI Bank and Lakshmi Vilas Bank had the highest NPA ratios of around 25% in the second quarter.