PSU banks NPAs soar to over Rs 6 lakh cr for Q4

New Delhi, May 23: Public sector banks have had a tough FY18 March quarter with ballooning provisioning, and NPAs (non-performing assets) hitting their financial health.
NPA ratio has surged to 13.41 percent for the March quarter in the case of PSU banks, a significant increase from 11-12 percent range it saw during the first three quarters of FY18, CARE Ratings said in a report.
Overall, for the banking space, out of 26 lenders that have declared their earnings, NPAs have marched ahead to Rs 7.31 lakh crore. Compared to the same quarter of last year, they have risen by Rs 2.5 lakh crore. For PSU banks, the figure stands at Rs 6.16 lakh crore.
The latest bank to declare its results is State Bank of India (SBI), which reported a net loss of Rs 7,718 crore for the quarter under review.
As such, stocks have either not reacted or surprised the Street in some cases after their results were declared. For instance, SBI soared 6 percent after the numbers were declared.
“Looking at other banks’ results, analysts were expecting State Bank of India to post a huge loss as well, the expectations could have been around Rs 2,000-odd crore. While all PSU banks have been writing off (their books) aggressively, in SBI’s case, too, it was anticipated. With such results, the stock could have probably fallen, but has actually managed to be steady. So, the worst was probably being priced in by investors in case of this stock,” AK Prabhakar, Head of Research at IDBI Capital said.
However, global research firms have remained mixed on their views on the stocks. Among marquee PSU bank names such as PNB, Canara Bank they have expressed surprise on the worsening asset quality. Here’s a look at what major global research firms have said about the stocks.
Credit Suisse maintains an underperform rating on SBI post Q4 results but slashed its target price to Rs 322 from Rs 381 earlier. The residual stress is contracting, but further capital infusion might be required, said the note.
Gross NPAs have peaked at 10.9 percent this quarter. The global investment bank cuts FY19 EPS by 3 percent and FY20 EPS by 20 percent on higher provisions.
BofA-ML maintains a buy rating on SBI post Q4 results and recommends a target of Rs 380. It looks like recognition of NPAs is now behind us and the recovery and loan growth is likely to drive sharp rebound.
The March-quarter weakness was led by new NPL norms, as well as treasury losses. But, we need to understand that SBI is the key beneficiary of asset quality cycle, which is positive.