How troubled Indian banks are behaving under RBI watch, against the backdrop of declining market share and profits

Collectively, BCP banks have seen their total income increase since the first quarter of FY19.

Distressed banks, placed under the Reserve Bank of India’s (RBI) Rapid Corrective Action Framework (PCA), have seen their market share shrink as the guidelines place restrictions on lending, but their income has risen. a turn to the north. The RBI recently placed several public and private sector banks under its supervision to help them improve their financial performance. The five banks under the careful watch of the RBI, as of March 31, although having experienced an increase in their income, their profits are still falling into negative territory, underlines a report by Care Ratings.

Currently Indian Overseas Bank, Central Bank of India, UCO Bank, United Bank of India, Lakshmi Vilas Bank and IDBI Bank fall under the PCA framework, among which United Bank of India ceased to exist following its merger with Punjab National Bank yesterday. The CARE Ratings report points out that between 9MFY17 and 9MFY20, the said five banks recorded a decrease of 13.7% in the loans they granted, reducing their market share to 6.8%. For a bank to be placed under the RBI PCA, it must have violated four regulatory points, namely 1) the weighted risk / capital ratio of assets, 2) non-performing net assets, 3) return on assets (profitability), and 4) leverage ratio.

When it comes to gross non-performing assets (GNPA) in absolute terms, said five banks collectively saw a decline from Rs 1.8 trillion in the first quarter of FY19 to Rs.1400 billion in the third quarter of FY19. fiscal year 20. The GNPA ratio during the same period fell from 25.3% to 21.1%. “Recoveries (excluding LVB) have increased from Rs.6,996 crore in 9MFY18 to Rs.22,258 crore in 9MFY20 thanks to recoveries in the steel sector, while depreciation has increased from Rs.12 159 crore in 9MFY18 to Rs.23 151 crore in 9MFY20 as banks clean up their books, ”Care Ratings said. The Indian government injected 11,500 crore rupees into PSU banks as part of 2019.

Collectively, PCA banks have seen their total income increase since the first quarter of fiscal year 19. At the end of the third quarter the previous total tax income stood at Rs 26,763 crore for said banks. The increase in total revenue is driven by a 27% increase in other revenue and an increase in revenue from fees. Although total expenses increased 8.4% year-on-year during 9MFY20 due to higher operating expenses, provisions slowed to Rs 34,820 crore in 9MFY20 from Rs 41,328 in 9MFY19, according to the report.

Indian Overseas Bank, UCO Bank, IDBI Bank and Lakshmi Vilas Bank continue to give negative returns on assets, while Central Bank of India and United Bank of India have made remarkable returns to positive territory in the past year. The recovery was facilitated by repeated rate cuts of 135 basis points by the RBI. Distressed lenders have switched to weighted average lending rates (WALR) on new loans, which has an impact on their overall profitability. With the exception of Lakshmi Vilas Bank, all other banks also reported healthy growth in the capital adequacy ratio.

Although the subsequent capital injection helped the banks improve their financial situation, with the merger of United Bank of India with PNB and IDBI securing much needed support from LIC, the remaining banks are awaiting their fate.

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