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The divide between private sector banks and their state-owned peers continued to widen in the latest December quarter.
While net profits of public sectors banks grew only marginally over a year ago, the profits of private sector banks rose 27.5 per cent.
A higher proportion of bad loans from restructured assets and exposure to stressed sectors led to a dismal quarter for public sector banks (PSBs), with a fall in asset quality.
The gross non-performing assets for PSBs , rose from 2.3 per cent of advances in December 2010 to 3 per cent in December 2011.
In contrast, private banks reduced their gross NPA ratio from 2.5 per cent to 2.1 per cent over the year.
A higher proportion of restructured assets that turned bad, delinquencies in priority sectors such as agriculture, and loans to the power sector seem to be behind the debt problems of PSBs.
In contrast, private banks have limited exposure to restructured assets, with much of the loan-book in secured retail loans such as home and vehicle loans.
Bad-loan provisioning
Andhra Bank, Central Bank of India, Oriental Bank of Commerce and State Bank of Travancore recorded a more than 80 per cent year-on-year jump in their gross NPAs. And State Bank of India saw a 71 per cent jump in its gross NPAs.
With a sharp rise in bad loans, PSBs have had to increase provisions too.
During the nine months ended December 2011, the provisions of PSBs went up by 53 per cent, while that for private banks fell by 25 per cent.
Private banks managed to reduce their provisions on the back of improving asset quality. ICICI Bank, for instance, witnessed a 41 per cent fall in provisions for the nine months ended December 2011.
The divergence between PSBs and private banks widened not only in terms of asset quality, but also in terms of core business growth.
MARGIN PRESSURES
For the quarter ended December, PSBs saw their net interest income (NII) grow by just 12 per cent while private banks notched up 18 per cent.
Excluding SBI (NII growth of 26 per cent y-o-y), the NII growth for other PSBs was 7 per cent.
Margin pressures (excluding SBI) were higher on PSBs because of the rising cost of funds and sums parked in low-yielding government debt.
Lower interest income growth could partly be due to sharp rise in non-performing assets which does not allow income recognition on an accrual basis.
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