Asset quality stress persists as state-run banks report mixed earnings

Second quarter earnings announcements of state-run bankson Friday appear to be a mixed bag. Of the six banks – Bank of Baroda, Bank of Maharashtra, Corporation Bank, UCO Bank, United Bank of India (UBI), and Vijaya Bank – two reported year-on-year decline in net profit, while three of the lenders impressed investors with significant improvement in profitability.

Bankers, however, cautioned that asset quality stress might continue in coming quarters leading to erosion in their profitability Stock Market Tips

Bank of Baroda – the second largest government-owned bank in the country – saw its second quarter profit after tax decline by 5.5 per cent from a year earlier to Rs 1,104 crore. Five-fold increase in tax provisions and deterioration in credit quality affected the lender's earnings.

The bank's tax provisions increased sharply to Rs 410.67 crore, as it had to create a deferred tax liability on special reserves. Gross non-performing asset (NPA) ratio increased by 21 basis points sequentially and by 17 basis points from a year earlier to 3.32 per cent. “The bank was expecting improvement in business environment by end of September. But things have not evolved on expected lines. There is still stress in the system, which might continue for two or more quarters,” P Srinivas, executive director at Bank of Baroda, said Free Share Tips

The lender has now raised its gross NPA guidance for March, 2015 to 3.2 per cent instead of 3 per cent. It has also scaled down its estimate on return on asset to 0.9 per cent from one per cent. “TheNPAs were slightly above than our estimates. The key issue to watch on the stock is the asset quality and the strategy after coal block de-allocation,” Rahul Shah, vice-president for equity advisory group at Motilal Oswal Securities, said Intraday Trading Tips

UCO Bank's second quarter net profit plunged 74 per cent to Rs 103.5 crore, as provisions increased sharply and restructured loan accounts witnessed fresh slippages. The bank made Rs 935 crore provisions, excluding tax, during the three-month period compared to Rs 759 crore a year earlier.

“Our credit growth was relatively muted. Also, slippages of assets from the infrastructure sector led to Rs 2,100 crore NPAs during the quarter. Besides, half of total slippages were by restructured assets,” Arun Kaul, chairman and managing director at UCO Bank said. He added that the bank was continuing its focus on loan recovery and avoiding large ticket corporate advances to improve the health of its assets. Vijaya Bank reported 5.9 per cent increase in net profit at Rs 144 crore. Higher provisions for NPAs (up 16 per cent) and fresh slippages (Rs 731 crore) capped further growth in the bank's earnings. “There was no visible demand for credit from corporate sector as no new greenfield or brownfield investments took place. We do not see any demand from this sector even in the third quarter,” V Kannan, chairman and managing director of Vijaya Bank, said Commodity Trading Tips

Bank of Maharashtra, Corporation Bank and UBI reported sharp increase in their net profits.

Pune-based Bank of Maharashtra announced 248 per cent growth in net profit at Rs 163 crore, aided by upgradation of accounts that had earlier slipped into NPAs. The lender also improved its net interest margin by 20 basis points to 2.90 per cent. “Cash recoveries and upgradations helped us to contain the impact of gross NPA,” S Muhnot, chairman and managing director of the bank, said Nifty Trading tips

Kolkata-based UBI, which appears to be scripting a turnaround, reported net profit of Rs 43.8 crore in the July-September quarter compared to a net loss of Rs 489.7 crore in the corresponding period of last year. The bank had plunged into a crisis after its chairperson had opted for a voluntary retirement and claims were made of window dressing its accounts to conceal NPAs. But for the past few quarters the lender has stepped up its loan recovery efforts, which now appears to be yielding results.

Corporation Bank said its net profit increased over 10-fold to Rs 160.5 during the second quarter compared to Rs 15.5 crore a year earlier. Lower provisions — Rs 520.4 crore versus Rs 699.8 crore — helped the bank in improving its earnings performance Free Stock Share Tips