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Early declaration of quarterly results by some of the large Indian banks could be an indicator of the improvement in asset quality cycle, according to State Bank of India’s research report EcoWrap.
As per the available results of public sector banks (PSBs) for Q2 (July-September) FY20, the gross non-performing asset (GNPA) ratio is around 11.7 per cent, lower than the overall March 2019 ratio of 12.6 per cent.
“So, pushing forward of the result date could act as an indicator of banking sector asset quality. However, more data remains to be seen, going forward,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.
To establish such a correlation, SBI’s research team took the Q4 (January-March) and Q2 results of the 12 PSBs that will remain after the recent merger announcements.
The time period considered for the study was from Q4 FY10 to Q4 FY19. Its results show that the two are positively correlated with a correlation coefficient of 55 per cent.
As the asset quality review was initiated in 2015, the dates of bank results went well beyond their usual timing, which usually is till April 30 for Q4 and October 31 for Q2.
“Over the years, it has been seen that bad results prompt companies to push their results date earlier. We tried to see the movement of bank GNPA in relation to bank results declaration date,” Ghosh said.
However, recently, macro-stress tests for credit risk of RBI indicate that under the baseline scenario, scheduled commercial banks’ (SCBs) GNPA ratio may decline from 9.3 per cent in March 2019 to 9 per cent in March 2020.
“Simultaneously, bank results are now being pushed to be declared more within the first month of the preceding quarter.
“When we look at the available results of PSBs for Q2 FY20, the GNPA ratio is around 11.7 per cent, lower than the overall PSB March 2019 ratio of 12.6 per cent. Thus, pushing forward of the result date could clearly act as an indicator of banking sector asset quality,” said Ghosh.
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