Mumbai: The government's large capital infusion of around Rs 60,000 crore during the last quarter would help public sector banks to improve their provision coverage ratio (PCR) because of which they are likely to report higher losses for the fourth quarter ended March 31, 2019. On the other hand, private banks will be able to improve their profitability sequentially and on a year-on-year basis. Among the private lenders while retailled banks would continue to do well, large corporate lenders also seem well-positioned.
During the third quarter ended December 31, 2018, public sector banks (PSBs) had reported losses of Rs 11600 crore but these were supported by the reversal of the mark-to-market provision (MTM reversal) on their bond portfolios. The central bank also did open market operations (OMOs) during the third quarter which had led to a fall in yields thereby helping PSBs report lower losses.
According to ICRA, the PSBs could report losses in the range of Rs 21,000-Rs 22,000 crore in Q4FY19. PSBs had reported losses of Rs 16,600 in Q1FY19, Rs 14,700 crore in Q2FY19, Rs 11,600 crore in Q3 FY19. The benefit of the reversal of the MTM provision on their bond portfolio is not there for the fourth quarter. According to analysts, the gross and net non-performing assets (NPAs) are likely to fall sequentially.
Anil Gupta, Sector Head, Financial Sector Ratings at ICRA said, "Large capital infusions from the government and reduced level of net NPA position, will improve the solvency level of PSBs from 67 per cent to 55 per cent for Q4FY19, although it will result in higher losses.
The NPA is expected to decline to 6.3 per cent as on December 31, 2018 to 5.3-5.4 per cent as on March 31, 2019. On the same lines, the Gross NPA is expected to decline from 13.3 per cent as on December 31, 2018 to 12.4 to 12.5 per cent for the March quarter."
Private Banks are still the preferred play at this juncture: "Private banks could report 80 per cent growth in net profits for Q4FY19. While Q4FY18 was a weak quarter for private lenders primarily because of the RBI February 12 circular which increased provisions and impacted their profitability, for Q4FY19 they would report better numbers because of the low base of last year. Their asset quality is expected to remain steady with Gross NPAs of 4.3 to 4.4 per cent and net NPA of 1.62 to 1.65 per cent," added Gupta.
